Guidance on an “associated employer” for equal pay comparison

We consider the recent decision of the Employment Appeal Tribunal on the definition of an "associated employer" for equal pay purposes in the on-going equal pay litigation against Glasgow City Council 

29 April 2013

In the recent case of Fox Cross Claimants v Glasgow City Council and others, the EAT has considered whether employees who had transferred under TUPE from a council to an LLP could compare their pay with council employees for equal pay purposes.

The Claimants were initially employed by Glasgow City Council ("the Council") but subsequently transferred under TUPE to various arms' length organisations – one constituted as a company ("Glasgow Life"), and two as LLPs. The Council retained various powers and responsibilities in respect of each of the new entities – such as entitlement to profits; control over their business plans; and the power to appoint or remove board members. The Claimants later brought equal pay claims, seeking to compare their pay with that of comparator employees who were still employed by the Council.

The Claimants brought their claims under the Equal Pay Act 1970 ("the Act"). Under the Act, a comparator must either be employed by the "same employer" or an "associated employer" as the claimant. Where a comparison is not available under domestic law, there are wider provisions available under the Equal Treatment Directive, which permits comparisons between employees where their terms and conditions are attributable to a "single source" – being a single body responsible for the inequality of pay and having the ability to rectify it.

The Tribunal identified that the definition of "associated employer" in the Act required one of the employers to be a "company". It held, therefore, that the employees of Glasgow Life could make an equal pay comparison with the Council employees, but the LLP employees could not (on the basis that an LLP is not a legal entity recognised under the Companies Act 2006). Further, the Tribunal held that as the LLPs were able to set the terms and conditions of their employees, the inequality of pay was not attributable to a "single source"; therefore, the Claimants had no recourse under EU law.

On appeal, the EAT overturned the Tribunal's decision. It noted that the word "company" was not defined under the Act and potentially had a broad meaning. The EAT considered a number of factors, including the fact that companies existed long before the Companies Acts were enacted, and that the "associated employer" provision was an anti-avoidance measure to prevent employers from setting up a separate legal body and transferring all employees of one gender to that separate body, thus avoiding equal pay liability. They held that it would be inconsistent to essentially allow LLPs to be used for this purpose. The LLP and the Council were, therefore, associated employers under the Act.

Having found in the Claimants' favour, the EAT was not required to address the issue of the Council and the LLP being a "single source" under EU law. It did, however, comment that it disagreed with the Tribunal's approach; stating that whilst it was relevant that the employees' terms and conditions were set by the LLP, they should also have taken into account the level of control the Council exercised over the LLPs and the likelihood that the Council could have remedied an inequality situation.

Impact for employers
• The definition of "associated employer" under the Equal Pay Act 1970 remains the same under the Equality Act 2010. Therefore, the EAT's decision on the interpretation of the provision shall also apply to the current law.
• In reaching its decision, the EAT stated that to interpret the legislation narrowly, excluding LLPs, would leave the law in an "uncomfortable state". To do so would create a situation where some employees could be transferred from a Council to a company and be afforded the protection of equal pay provisions on the basis of an "associated employer" comparison; whilst similar employees transferred to a LLP would not. This would have occurred despite the fact that the Council had the same relationship with both entities.
• The EAT accepted that important legal issues were raised in this case, and therefore granted Glasgow City Council leave to appeal to the Court of Session.