In-House Employment Lawyers Coffee Break: Episode 18 – Pay Gap Reporting

In this month’s discussion, we share our thoughts about the government’s consultation on introducing ethnicity and disability pay gap reporting, as well as the Supreme Court’s landmark decision on the meaning of “sex” in the Equality Act 2010.

Transcript

The Agenda podcast by Lewis Silkin: In-House Employment Lawyers Coffee Break

Episode 17: Pay Gap Reporting 

Lucy 

Hello and welcome to Coffee Break, our monthly podcast for in-house employment lawyers, in which we talk through the latest developments and practical takeaways that you need to know. I'm Lucy and joining me today is David.

David 

Yes, thanks Lucy, I'm back again this month because we're going to be talking about the government consultation on introducing ethnicity and disability pay gap reporting and we're going to touch on the For Women Scotland case on the meaning of sex under the Equality Act.

Lucy 

It’s no surprise you couldn't stay away, David, with that agenda. I'm sure everyone will be aware that the Labour Party committed to introducing ethnicity and disability pay gap reporting in its manifesto. But when the Employment Rights Bill was published, it didn't include anything about ethnicity and disability pay gap reporting. Instead, it was included in the Next Steps to Make Work Pay document and now we've got a consultation.

David 

Yeah, and before we get into any of the detail, I just wanted to flag that we're currently working on our Lewis Silkin response and we'd be really happy to include comments from our IHELC community, so if you do have any comments or anything you'd like to feed in anonymously, please just let us know and we'd be super happy to do that.

Let's start there with timelines and a bit of stargazing because that's always fun. It's looking like mandatory pay reporting for ethnicity and disability will feature in the Equality (Race & Disability) Bill, which we expect to see later this year - we think that Bill will possibly be passed in 2025 but we'll also need some implementing regulations on the detail, which would mean that the earliest we'll have mandatory reporting would be from around 2027. Obviously that timing could be wrong but that's what we think the direction of travel is.

Lucy 

Yes and if that timing does happen, then obviously everyone needs to be ready for it. So, of course employers are going to be familiar with gender pay gap reporting, we've had that in place since 2017 for large employers (so employers with more than 250 staff). It is going to be a similar reporting framework for ethnicity and disability. So, the reporting will be based on a snapshot date which would be the 5th of April. Then the employer will have 12 months to publish their data which means that the report will need to be published by the 4th of April of the following year.

David 

And at the moment, the government plans are for employers to report largely the same set of pay measures that we use for gender pay gap reporting when it comes to ethnicity and disability pay gap reporting.

Lucy 

Yeah, so of course that's mean and median differences in average hourly pay, mean and median differences in bonus pay, pay quartiles (so that's the percentage of employees in four equally sized groups, ranked from highest to lowest by hourly pay) as well as the percentage of employees receiving a bonus. The one difference for ethnicity and disability reporting is going to be an additional requirement to report the overall breakdown of the workforce by ethnicity and disability and the percentage of employees who didn't disclose their personal data. And it's that last one that I think is interesting because one of the issues we'll come to talk about is how you get that kind of personal data from employees, so it is good to see that we're going to have this “prefer not to say” option and that will just get rolled up into the reporting obligations.

David 

Yeah, absolutely. Obviously, we don't know for sure yet but there's no reference to sanctions for non-compliance within the consultation document so that means on that front, the same issues that exist in relation to gender pay gap reporting in terms of a kind of lack of teeth potentially undermining the effectiveness of it might well persist. The gender pay gap, we know, hasn't substantially reduced based on the metrics we've had since 2017 so query whether that will be the case for ethnicity and disability too - although obviously we know that the awareness and the discussion of this kind of mandatory reporting does make a difference.

Lucy 

Yeah, I agree with that. There does seem to be an intention that employers will be required to publish an action plan, and the government is seeking views on that in the consultation. Obviously, we know that's going to happen with gender pay gap reporting now under the Employment Rights Bill but I think it's really interesting to see how that all plays out, particularly in light of what's happening in the US. We know some clients are starting to worry or think a little bit more about what you can actually say in those documents.

David 

Yes for sure, for some, there's going to be internal and external issues to surmount there. So, looking at the details of the reporting itself, there's some specific challenges with the plans for categorising both ethnicity and disability. Disability is at least in theory a bit more straightforward - it'll be for employees to self report with no requirement for anyone to disclose their status. The proposal is that reporting would be binary, i.e. the pay gaps between disabled and non-disabled employees. That kind of binary reporting can be a bit limited and of course, some employers will want to go further to understand the impact of different types of conditions on pay. For ethnicity, as we expected, employees will be self-identifying with 18 possible options for ethnicity, in addition to a “I prefer not to say” option that we touched on earlier. That broadly reflects the current guidance for voluntary reporting and the government wants employers to report on every category which has 10 or more employees in it.

Lucy 

It feels really low, doesn't it?

David 

Yeah, I think there's real challenges with choosing that figure just from a statistical robustness perspective as well as from a data protection perspective. It's a complete departure from the current guidance for voluntary reporting.

Lucy 

And the other thing, I think, is 10 employees is a number that's really going to fluctuate. You know, just leavers and joiners would cause significant fluctuation in that, so you get to a position where you're having to really carefully explain the data that you've got.

David

Absolutely, and that actually brings us on to the kind of meaningfulness, so to speak, of what you actually report on. If you take the example of an employer with around 250 employees, so just falling within the threshold for reporting, well that employer may well end up having to report on a binary white versus non-white basis which is obviously just a really blunt instrument.

Lucy 

Yeah, I totally agree with you that that binary comparison just risks being meaningless and then as an employer, you're faced with that decision about whether you just report what you're required to, or you invest additional time to explain the data - perhaps you share more meaningful diversity measures and diversity comparisons.

David 

Absolutely. So look, in terms of practically getting ready, I think the single most important thing that everyone can be doing now is looking at the quality and quantity of the data you have now and how you can improve that. So have a look at how you categorise for ethnicity and see if that's the same as the 18 categories the government seems to be intending to mandate. Incomplete data, I think is going to be a really big challenge here, and we've touched on this, but it can really skew the numbers. We don't have lots of time to dive into this now on Coffee Break but we did do a special podcast on this very topic back in February - we’ll pop a link in the transcript and it covers this topic in lots more detail as well as how to drive up self-disclosure rates. 

Lucy 

Yeah that's great, so definitely have a listen to that. Before we go, we obviously wanted to talk about the Supreme Court decision in For Women Scotland which many employers - and many employment lawyers -are still trying to digest.

So just to recap, the case arose from a challenge by the group For Women Scotland Ltd to guidance issued by the Scottish Parliament on gender representation on public boards.

David 

That’s right, Lucy. So, the Supreme Court has now confirmed that the Equality Act's definition of sex is based on biological sex at birth rather than certified sex under a GRC. Although a GRC changes a person's gender “for all purposes”, there's an exception for this where the assumption is disapplied by other legislation - complicated right? The Supreme Court has now decided that the Equality Act does disapply that rule, because otherwise it would cut across the provisions relating to the protected characteristic of sex in an incoherent way. 

However, the Court went on to make it clear that, in their view, this doesn't take away protections from discrimination for trans people. Gender reassignment remains a protected characteristic under the Equality Act, and it's not dependent on that individual having a GRC.

Lucy 

Thanks David - that's a brilliant summary of an 88-page decision! I think the practical point that's arising from the decision is the one that relates to the use of single-sex facilities in the workplace and a lot of public and political debate since the Supreme Court decision has tended to focus on that issue. 

One of the things I think it's important to remember is that the services and work sections of the Equality Act differ in how they manage single sex facilities. The Equality Act expressly says that providing single-sex services is neither sex discrimination nor gender reassignment discrimination if certain conditions are met. But employers aren't in that position because the rules in Part 5 of the Equality Act which cover employment don't make explicit allowance for single sex or separate services, and that means that employers don't have the equivalent protection from trans-related discrimination claims.

So employers find themselves in this position where their responsibilities are really unclear and it involves this very tricky balancing act, and unfortunately it looks like that uncertainty is going to continue at least for the time being.

David 

Yeah, I'm afraid it does, Lucy. There has of course been an attempt to provide a level of clarity from the Equality and Human Rights Commission - on 25 April they issued an interim update for employers and service providers. Just to be absolutely clear though, that's not the same as an updated version of its formal guidance, though the EHRC has said they're working on updating both statutory and non-statutory guidance. That might be some way off - the first step is that they have to consult. We think that will be middle of May and it then needs ministerial approval, which we think is timetabled for the end of June. But it's important to be clear that what the EHRC is focusing on here is the Service Code of Practice. There's been no mention of updating the Employment Code of Practice. So that concrete workplace specific guidance that many employers are craving doesn't look to be imminent.

Lucy 

Yeah, that's right - and I think it's important for employers to factor that in to their strategy going forward. Going back to the update itself, although the update was intended to provide clarity, as you say, I'm sure lots of our listeners will know that it's not been without criticism. 

The update says that workplaces must have enough single-sex toilets and single-sex changing and washing facilities where those are needed. It also makes clear that where a single sex facility is provided, trans people shouldn't be allowed to use the facility aligned to the sex with which they identify. But what the update doesn't address at all is how you balance the provision of single-sex facilities against the rights of trans people not to experience gender reassignment discrimination and harassment. And that's a real challenge where either there's no suitable facilities or there's no equivalent facilities for them to use.

David 

Absolutely and just to reiterate that really crucial point, employers don't have the same statutory form of protection from trans-related discrimination claims that service providers have in this space. 

Unsurprisingly, the discussions with our in-house community echo our feelings that as it stands, this interim update is pretty hard to put into practice - in particular, how can employers balance the rules on single-sex facilities with the need to protect trans employees? Employers are concerned about claims from different angles - discrimination claims from trans employees if they're forced to use facilities that don't match their gender identity, and sex discrimination claims from other staff, including gender critical staff, about their rights being infringed.

Lucy 

Yeah, there's also a health and safety dimension to add to the complexity of all of this and that's because health and safety regulations say there must be separate toilets for men and women unless each toilet is in a separate room that can be locked from the inside. So broadly, that's considered to be a toilet and a sink behind the locked door and that's another thing that employers are having to grapple with.

David 

It certainly is. Our general sense is that in the absence of clear guidance, most employers are still considering a fairly broad range of options, but unfortunately, all of them carry some risk from different perspectives. Thinking really practically about this, many organisations just don't have the resources or the space to make really quick changes to facilities like, for example, redesignating a block of toilets as unisex, not to mention whether that would be compliant from a health and safety law point of view.

Lucy 

Yeah, I agree completely with that. And the other important consideration has been communicating with staff: how do you do that when the issue is as sensitive as this? I know some employers are considering - maybe already have - issued a statement to staff about the ruling. But what's going to be appropriate is really going to vary between organisations. And again, my sense is that many are just holding off a company-wide statement in the hope we're going to get some more detailed statutory guidance about what you should do and how you can manage this in practice. So, you know, fingers crossed for all of us that we get some guidance that's really specific to the workplace and that we get that in the not-too-distant future.

I'm afraid that's all we've got time for today, but if you're not already part of our in-house employment lawyer’s community, providing you access to market leading, Lewis Silkin and member-led training and materials, we always welcome new joiners so please get in touch with us.