The Employment Appeal Tribunal’s (EAT) decision in Next Retail Ltd v Thandi and others attracted considerable attention when it was published. The immediate headlines may now be familiar, but the more useful question for employers is what the judgment means for the way pay differences are created, evidenced and reviewed across different parts of a workforce.
For retailers, the comparison between predominantly female store roles and higher-paid warehouse roles is particularly recognisable. Yet the principles extend well beyond retail. Employers in many other sectors including automotive, manufacturing, SMEs and independent health and care, frequently operate different labour markets within the same organisation, with particular roles attracting premiums because of skills shortages, shift patterns, location, unsocial hours or acute recruitment and retention pressures.
The decision does not provide a general licence to pay different groups differently simply because “the market” does. It does, however, show that a carefully identified and evidenced business reason may justify a difference in pay, even where employees are performing work of equal value and the difference places one sex at a particular disadvantage.
What is the claim about?
The claims against Next were brought by more than 3,500 sales staff working in its stores. The claimants, who are predominantly women, compared themselves with higher-paid warehouse operatives, a group with a small male majority.
In 2023, the Employment Tribunal found that the sales and warehouse roles were of equal value. It then considered whether Next could establish a “material factor” defence under section 69 of the Equality Act 2010.
Next relied on factors including market rates, recruitment and retention pressures, and the need to maintain a 24-hour warehouse operation. However, the Tribunal found that the resulting pay differences placed women at a particular disadvantage and could not be objectively justified.
It characterised Next’s aim as merely cost saving and took account of its “financial headroom”, concluding that Next had the financial means to increase the pay of its sales staff.
Why did the EAT disagree?
The EAT said that, effectively, the Tribunal had asked the wrong question when looking at whether the difference in pay could be justified.
It was not necessary for Next to justify why it had not increased the sales staff’s pay to the same level as the warehouse staff. The focus should have been on why the warehouse staff were paid more.
The aim, taken as a whole, of paying higher rates to warehouse staff was to recruit and retain enough staff to maintain Next’s 24/7 warehouse operation. The rates paid to warehouse staff were needed for sound business reasons and were no higher than necessary. Those business aims did not apply to the sales staff.
The EAT therefore concluded that the difference in basic pay was objectively justified. That was an important success for Next, but not a complete one. Findings relating to paid rest breaks, night-working premiums and overtime premiums remained against it because those differences were not as clearly connected to the recruitment and retention rationale. Both parties have indicated an intention to appeal, so the litigation may yet develop further.
Why this still matters, particularly in retail
Retailers often employ distinct workforces across stores, warehouses, distribution centres, customer contact functions and head office. Those groups may be recruited from different labour markets and work to different operating models. This decision confirms that those differences can matter, but an employer needs to identify the reason for each individual element of remuneration. A strong justification for warehouse basic pay will not automatically justify a warehouse-only premium, enhanced break or overtime arrangement.
The practical risk is greatest where occupational segregation and pay structures intersect, for example, where store or customer-facing work is predominantly undertaken by women while logistics, technical or distribution work has a different gender profile. Retail employers should avoid treating the issue as a simple comparison of job titles or hourly rates. The whole reward package, and the evidence supporting each difference within it, needs to be understood.
Practical lessons for employers
This decision is a significant one for Next and other employers across a wide range of sectors. It confirms that genuine market, recruitment and operational pressures may, depending on the circumstances, justify higher pay for one group, even where the resulting difference disadvantages another. However, the situation will always be fact sensitive.
The decision also highlights the importance of identifying the precise reason for any pay difference, particularly where the roles concerned have different gender profiles. Employers need to be able to explain the specific operational need for a higher rate, supported where possible with contemporaneous evidence. They should retain market data, recruitment figures and records of pay-setting decisions, and keep the justification for any differences under review.
The reason should be recorded when the pay decision is taken. If a premium is introduced because a vacancy has remained open, turnover has increased or a competitor has entered the local market, record that evidence and the decision-making process. A broad reference to “market forces” is much less persuasive than contemporaneous material showing the scale of the problem, the options considered and why the chosen payment was necessary.
Sector-specific pressure points
In retail, it may be prudent to compare store, online fulfilment, warehouse and distribution arrangements, and pay particular attention to location, night, Sunday, overtime, attendance and productivity payments. Link each premium to the operational issue it is intended to address rather than relying on the general commercial importance of the logistics function.
In automotive and manufacturing, examine shift, skills, maintenance, engineering, production and logistics premiums. Evidence may include vacancy periods, agency dependence, turnover, production requirements and local labour-market data. Employers should also check whether historic allowances still correspond to a current operational need, rather than simply reflecting custom and practice.
The same discipline applies to digital, technology, sales, finance, customer service and other functions competing in different labour markets. Individual salary negotiations and counteroffers can gradually create wider structural disparities, so exceptions should be recorded, monitored and tested against objective criteria.
For independent health and care providers, potential pressure points include premiums for regulated professionals, scarce clinical or technical skills, on-call work, nights, weekends and particular locations. Recruitment difficulty and continuity of care may provide a legitimate rationale, but the level and duration of any premium should be supported by evidence and reviewed against comparable roles and the wider reward package.
The central lesson is therefore not that market rates will always justify a pay difference. It is that employers need to be able to identify the precise reason for paying one group more, demonstrate that the reason is legitimate, show that the difference is a proportionate response and retain the evidence needed to explain that analysis later.
Alongside the lessons from this case, employers should keep an eye on the government’s plans to reform and modernise the equal pay system. Those reforms are likely to increase the value of doing this work proactively, before a historic or poorly documented pay difference becomes a large-scale dispute.
For more information, please get in touch with our employment law team.
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