A recent legal case on equal pay could pave the way for claims leading to lengthy and costly public proceedings. Michael Ball suggests that insurance companies ensure their clients review their pay policies and implement new systems

The case of Villalba v Merrill Lynch has put equal pay claims back in the limelight and raises potentially huge issues for multinational clients of insurance companies. Should executives in different parts of the world be paid equally?

If the claim succeeds it would set a precedent that would have a massive impact - in effect setting a global pay benchmark. And insurers would be faced with huge claims arising from pay discrepancies.

The issue of what global businesses are paying employees doing similar work, or work of equal value, in different countries would bring about a new context to equal pay claims that have up until now been limited to comparing pay scales in the same country.

There are factors that support such a development - for example European equal pay legislation is binding upon firms in the UK and throughout the EU. The threat of it extending further, for example for comparisons to be made with employees based in the US or Japan, has given this case worldwide media attention and a potential multi-billion pound headache for insurers.

There would also appear to be clear practical problems with extending the scope of the legislation. It is aimed at preventing different pay rates by reason of the employee's gender. If the comparator in any claim is based overseas the employer will be able to raise a number of reasons that are not gender-related that may explain the pay difference. This applies even if the employee is able to establish that the work is the same or of an equal value.

The country where an employee is based has historically been an important factor in setting pay rates and bonuses. A country's inflation and overall cost of living, as well as tax treatment, would all be taken into account when settling pay. The financial performance in any particular location will give a market rate that employees will expect.

The key issue for insurance companies is ensure that their clients prevent these types of claims arising in the first place. The extent of media attention, the costs and the work disruption mean that a considerable amount of damage may be done to the business even where the original claim is successfully defended.

The first step is to review the pay policy that is operated. Any employee may issue an equal pay questionnaire requesting information about the employer's pay policy in relation to other employees doing work that is the same or of equal value. The employer can no longer fend off such requests on the grounds of confidentiality.

The second step is to put in place a stringent pay review system and to set clearer performance targets. These will support the principle of the employee being paid more to reflect effort and results and will at the same time show how the pay structure is not tainted by discriminatory factors.

Thirdly the 'transparent pay system' should be reviewed and where appropriate consultation should take place with employee representatives to discuss whether it is sufficiently focused on the aims of promoting equality and discouraging discrimination claims.

  • Michael Ball is employment partner at Halliwells
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