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Equal Pay and Insolvent Employers

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Can a claim for equal pay which has not been quantified when the employer becomes insolvent constitute "arrears of pay" payable by the Secretary of State under Part XII of the Employment Rights Act 1996?

Yes, held the Court of Appeal in Graysons Restaurants Ltd v Jones.

Duchy Catering Limited went into administration. Administrators were appointed, who sold its assets to Graysons Restaurants. TUPE applied.

Under Reg 8(5) of TUPE liability for unpaid sums due to employees from an insolvent transferor do not transfer to the transferee, provided these are sums reimbursable by the Secretary of State as identified by the 'relevant statutory schemes' (i.e. Part XII of the ERA 1996). These include up to 8 weeks' arrears of wages.

In this case there were outstanding equal pay claims, although the precise quantification of claims had not yet occurred. The EAT held that equal pay arrears can be "arrears of pay" within the meaning of s184(1) of the ERA and therefore a debt within s182 of the ERA. The Court of Appeal upheld the EAT's decision.

Equality clauses were incorporated into the employees' contracts, as it had been conceded that they were performing work of equal value to their comparators. If that presumption were not rebutted by a genuine material factor defence, the employees had a legal entitlement to be paid in accordance with the equality clauses for work they performed before the appropriate date. The Court of Appeal accepted that, in many cases, there will be practical difficulties with this outcome, but they could not prevail against the obvious meaning of the statute. Nor were they unique to claims for guaranteed payments against the Secretary of State

To the extent that the liabilities exceeded the statutory limits in Part XII (i.e. arrears beyond eight weeks), these would transfer to Graysons, the transferee, under Reg 4 Of TUPE. That aspect of the litigation had been settled out of court.

Thanks to Dr John McMullen of Stone King LLP for preparing this case summary.