In Thandi and others v Next Retail Ltd, the Employment Tribunal has ruled that retail staff based in Next stores must be paid the same basic pay as its warehouse staff. It has been reported that the value of these claims may exceed £30 million. This is one of several ongoing multiple equal pay claims against national retailers, including Asda, Sainsbury’s, Morrisons and Tesco.

Under the Equality Act 2010, employees are entitled to receive the same pay and contractual terms as comparators of the opposite sex who perform the same work, work of equal value, or work that has been formally rated as equivalent. Employers may have a defence to an equal pay claim if they can show that the difference in pay is due to a material factor that is not discriminatory (known as the “material factor defence”). However, a material factor that is indirectly discriminatory may still be justified if the employer can show that it is a proportionate means of achieving a legitimate aim.

A group of 3,540 female shop-floor employees brought an equal pay claim arguing that Next was in breach of the Equality Act by paying them less than warehouse staff, who were predominantly male. Their claims related not only to basic pay but also to other regular and one-off payments including Sunday premiums, attendance and retention bonuses, and long-service awards.

In the first stage of the case, the Employment Tribunal held in June 2023 that the claimants were performing work of equal value to the warehouse staff. A further Tribunal hearing took place in May 2024 to establish whether Next could show that a material factor defence applied.

Next argued that the pay differentials could be explained by a range of material factors including market forces, recruitment and retention difficulties, and the overall performance and productivity of the Next Group.

The Tribunal held that these material factors involved indirect discrimination. Sales staff were 77.5% female, and warehouse staff were 52.78% male. Paying sales staff a lower basic pay therefore had a disproportionate effect on women, particularly given that Next benchmarked warehouse pay against the predominantly male market for warehouse staff.

The next step for the Tribunal was to consider whether Next’s pay practices could be justified as a proportionate means of achieving a legitimate aim. The Tribunal found that Next could have afforded to pay sales staff more, but chose instead to cut costs in order to maximise profitability. Since case law has established that differences in pay cannot be justified by costs alone, the Tribunal held that the lower basic pay could not be objectively justified. The Tribunal also rejected Next’s argument that it had to set pay according to market forces. As the Tribunal noted, market forces may themselves be based on historic discriminatory views on the value of “male” and “female” work. Allowing market forces to be used as a defence to an equal pay claim could therefore defeat the purpose of the legislation and perpetuate indirectly discriminatory practices. Similar reasoning applied to six other payments which were set at a lower rate for retail staff, including Sunday and night premiums, paid rest breaks, and long service awards.

However, Next’s defence succeeded in relation to other higher payments and premiums paid solely to warehouse staff. The Tribunal held that these payments could be objectively justified because they related to specific difficulties in recruitment and retention that did not apply to sales staff. For example, an attendance bonus paid at one warehouse was justified because its purpose was to stop workers leaving to join a nearby competitor. Similarly, Next could justifiably pay some warehouse staff triple pay on public holidays (rather than the time and a half paid to sales staff) because it was difficult to find warehouse staff to cover public holidays.

This is an Employment Tribunal decision and so does not set a binding precedent, but Next has already confirmed that it is lodging an appeal in the EAT. Employers should note that differences in pay cannot be justified solely by cost or profitability, and that Tribunals will scrutinise carefully any argument that relies on paying market rates. However, it may be easier to show objective justification for targeted and one-off payments in response to market pressures such as temporary recruitment or retention difficulties.