Barry v Midland Bank Plc

An equal-pay rule does not require an employer to adopt the method of calculating severance pay that would be most advantageous to women. The court must examine the purpose and actual operation of the chosen method.

A scheme based on actual final salary and completed years of service does not indirectly discriminate merely because employees who reduced their hours would receive more under a scheme based on past hours of work. Final salary may rationally measure income lost on severance, while years of service recognise loyalty. Where both criteria apply equally to full-time and part-time employees, the method does not offend article 119 of the EC Treaty.

Barry v Midland Bank Plc concerned a severance scheme incorporated into the appellant’s employment contract. She had worked full-time for 11 years and half-time for about two and a half years. On voluntary redundancy, she received 42 weeks’ pay calculated by reference to her actual part-time salary at termination and her total years of continuous service.

She alleged indirect sex discrimination under section 1 of the Equal Pay Act 1970 and article 119 of the EC Treaty. She contended that her part-time service should be converted to its full-time equivalent and the payment calculated using a notional full-time final salary.

The Industrial Tribunal, Employment Appeal Tribunal—whose decision was reported at [1997] ICR 192—and Court of Appeal, reported at [1999] ICR 319, rejected the claim. The central issue before the House was whether the bank’s use of actual final salary and years of service produced unlawful indirect discrimination.

Appeal dismissed unanimously. The House held, by a four-member majority on the controlling reasoning, that the severance scheme did not produce a relevant difference in treatment or engage the rules of indirect discrimination.

1. Per Lord Slynn of Hadley, Lord Steyn, Lord Hoffmann and Lord Clyde, article 119 of the EC Treaty did not require an employer to adopt any particular method of calculating pay. The question was whether the method actually adopted offended equal pay for equal work. A claimant could not establish discrimination merely by showing that a different, equally non-discriminatory scheme would have produced a more favourable payment.

2. Per Lord Slynn, Lord Hoffmann and Lord Clyde, the purpose and operation of the payment were material. Actual final salary measured the income lost on severance and provided a financial cushion following unemployment. Years of continuous service recognised length of service and loyalty. Both criteria applied without distinction to men and women and to full-time and part-time employees. A part-time employee’s lower final salary reflected fewer hours being worked when employment ended.

3. Per Lord Hoffmann, the proposed alternative would replace actual final salary and years of service with rate of salary and total hours of service. Article 119 did not permit comparison with that hypothetical scheme where the actual criteria were themselves non-discriminatory. Lord Steyn accepted the same essential analysis, while Lord Slynn regarded it as sufficient to decide the appeal.

4. Lord Nicholls concurred in the dismissal by a different route. He considered that, unless the immateriality of the alleged difference was plain, its legitimacy should ordinarily be examined at the objective-justification stage, where the employer bore the burden of proof. He inferred that the disadvantaged group was composed predominantly of women, although its size was unknown. He nevertheless concluded that the bank’s objectives and chosen factors were sufficiently important and proportionate to justify the scheme. Lord Clyde agreed with that conclusion in the alternative. Lord Steyn, however, would have rejected objective justification had that question arisen. Objective justification therefore did not form a majority ground.

1. House of Lords: In [1999] 1 WLR 1465, the House unanimously dismissed the appeal. Four Law Lords held that the scheme did not produce unlawful indirect discrimination; Lord Nicholls dismissed the appeal on objective-justification grounds.
2. Court of Appeal: In [1999] ICR 319, the court rejected the appeal. It identified the allegedly disadvantaged group as employees whose hours at termination were below their average hours during service and found the available statistics insufficient.
3. Employment Appeal Tribunal: In [1997] ICR 192, the tribunal rejected the claim and concluded that the scheme was lawful.
4. Industrial Tribunal: By a decision dated 15 June 1995, the tribunal rejected the claim.