Holmes Mackillop Solicitors has urged employers to examine whether differences in pay and benefits between comparable groups of workers could expose them to indirect discrimination claims following a recent Employment Appeal Tribunal ruling involving Next.
The Glasgow-based law firm said businesses should be able to demonstrate legitimate reasons for paying comparable employees differently, particularly where a pay structure places one group at a disadvantage because of sex or another protected characteristic.
The warning follows the Employment Appeal Tribunal’s judgment in Next Retail Ltd and Next Distribution Ltd v Miss M Thandi and others, published on 7 September 2026.
The long-running equal-pay case concerns thousands of predominantly female retail sales consultants who compared their pay and some employment benefits with predominantly male warehouse operatives employed by Next.
The appeal examined whether commercial factors including recruitment, retention, and external labour-market rates could legitimately explain why warehouse workers received higher pay than retail employees undertaking work that had been found to be of equal value.
Katie Maguire, trainee solicitor at Holmes Mackillop, said: “To prevent potential claims surrounding indirect discrimination, employers should ensure they have legitimate reasons for any discrepancies.”
She added: “It may not present itself as obvious, but any pay or employee benefit discrepancy that has the effect of placing one group of people at a disadvantage compared to another at a comparable level could lead to a tribunal claim.”
The original Employment Tribunal had found no direct sex discrimination in Next’s decision-making. It accepted that the retailer had not consciously paid warehouse employees more because they were predominantly male or retail employees less because they were predominantly female.
The composition of the two workforces nevertheless created a separate legal issue. Retail employees bringing the claims were overwhelmingly women, while warehouse workers used as comparators were predominantly men, meaning the difference in pay placed female employees at a particular disadvantage.
Next relied on a range of factors to explain the higher warehouse rates, including external market pay, difficulties recruiting and retaining warehouse staff, 24-hour operating requirements, productivity incentives, attendance arrangements, and commercial conditions affecting the distribution business.
The Employment Appeal Tribunal found that recruitment and retention pressures could form part of a legitimate aim when an employer is seeking to justify a pay difference.
Mr Justice Bourne also concluded that the earlier tribunal had made errors in aspects of its approach to legitimate aim and proportionality.
The ruling does not give employers a general right to rely on “market forces” whenever two comparable groups are paid differently. Where a pay practice creates a particular disadvantage for one sex, the organisation may still need to show that the difference pursues a legitimate objective and that the means used are proportionate.
Maguire said the predominantly female composition of Next’s retail workforce and the predominantly male warehouse workforce made indirect sex discrimination an important part of the case, even though direct discrimination had not been established.
“The retail staff was predominantly made up of female employees while the warehouse staff had a male majority,” she said.
“Although Next was ultimately found to be justified in its decision, it had the unintended consequence of disproportionately affecting its female employees.”
For employers, the decision puts greater emphasis on the evidence sitting behind pay structures rather than simply the existence of a difference.
A company facing persistent recruitment problems in a particular role may decide to increase salaries above those paid elsewhere in the organisation. Another may pay premiums for unsocial hours, scarce technical skills, difficult working conditions, or roles where vacancies create an immediate operational risk.
Those factors can provide a commercial explanation for different pay rates, but organisations may need to show why the higher payment was necessary, how the amount was determined, and whether less discriminatory alternatives were available.
The evidence can include recruitment records, employee turnover, competitor salary information, vacancy duration, shift requirements, local labour-market conditions, and internal records showing why a pay decision was made.
That documentation can become important years after the original decision. Equal-pay disputes frequently concern arrangements developed gradually across different sites or functions, while managers responsible for setting the original rates may no longer be in the same positions by the time a claim reaches a tribunal.
Employers therefore face a governance issue as well as a legal one. Where pay differences arise between groups doing comparable work, the rationale should be capable of being reconstructed from records rather than depending on institutional memory.
The Next case also shows why pay reviews cannot be reduced to headline salary alone. Equal-pay comparisons can involve bonuses, premiums, allowances, holiday arrangements, and other contractual benefits.
A difference introduced for one workforce may have a defensible commercial basis when considered individually but still contribute to a wider pattern of disadvantage when several elements of remuneration are assessed together.
Organisations with occupational groups that are heavily divided by gender can face particular exposure. Warehousing, retail, administration, care, engineering, and other functions can have markedly different workforce demographics even within the same company.
A neutral-looking decision to follow local labour-market rates can therefore affect men and women differently without sex forming any part of management’s intention.
Gender pay-gap reporting and equal-pay law also address different questions. Employers with at least 250 employees are required to publish gender pay-gap information, but a reported gap does not by itself establish an unlawful pay practice.
Conversely, an organisation with a relatively small overall gender pay gap may still face an equal-pay or indirect discrimination dispute involving particular jobs, sites, benefits, or employee groups.
Maguire said employers should consider such discrepancies before they develop into claims rather than waiting for litigation to expose them.
She also pointed to the Government’s encouragement for larger employers to publish gender pay-gap action plans ahead of further employment-law changes expected to make such measures compulsory.
The Employment Appeal Tribunal decision is not designated as a landmark judgment by HM Courts & Tribunals Service. It nevertheless provides employers with a current example of how genuine commercial pressures can interact with equal-pay and indirect-discrimination law.
The practical lesson from Holmes Mackillop’s warning is not that differences between comparable employees are inherently unlawful. Businesses need to know why those differences exist, whether they place a protected group at a disadvantage, and whether the commercial reasoning behind them can withstand scrutiny if challenged.
You must be logged in to post a comment.