European Court upholds pay system based on length of service in equal treatment case

In October 2006, the European Court of Justice (ECJ) gave its ruling on the case of Cadman versus the Health and Safety Executive regarding the interpretation of service-related pay, in the context of its potentially discriminatory impact. The case illustrates the circumstances under which the criterion of length of service is appropriate to attain a legitimate objective of rewarding experience. It demonstrates that employers do not have to establish specifically that service to the company is an appropriate criterion to attain that objective, unless the worker provides evidence raising serious doubts. The ECJ additionally held that, in the context of a job evaluation scheme, there is no need to show that the individual worker has acquired experience, in order for the worker to meet the criterion of length of service.

Context

Many employers recognise and reward long service of employees to the company, either through additional increments or payments – for example, on termination of the employment contract. However, statistical data show that women, on average, have shorter periods of service with employers than do men, as their employment is more likely to be interrupted by time away from the labour force for maternity reasons and to care for children. A payment system that rewards those with longer service is therefore likely to offer greater rewards to male than to female employees. The question in the case of [Cadman v Health and Safety Executive (Case C-17/05)](http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&Submit=Rechercher&alldocs=alldocs&docj=docj&docop=docop&docor=docor&docjo=docjo&numaff=C-17/05 &datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100) concerned the issue of whether such payments were discriminatory on the grounds of sex and were therefore in breach of Article 141 EC of the EC Treaty, which requires each Member State to ensure the principle of equal pay for male and female workers who carry out equal work or work of equal value.

Background to Cadman case

Ms Cadman worked for the UK Health and Safety Executive (HSE), a public body with responsibility for the regulation of health and safety in workplaces. She earned significantly less than her male counterparts, because she had worked fewer years for the organisation. In the HSE, pay is related to length of service and therefore workers who had longer service, mainly the male workers, earned more. Ms Cadman claimed the right to equal pay: the same pay as that of a male colleague with longer service who was doing the same work as her, but who earned more. The claim was referred to the European Court of Justice (ECJ) by the UK Court of Appeal, for the former to rule on the lawfulness of service-related pay.

Justifying discrimination

Under Article 2(2) of Directive 97/80/EC of 15 December 1997 on the burden of proof in cases of discrimination based on sex, employers may objectively justify indirect discrimination, if based on a legitimate objective and if the means chosen to achieve the objective are appropriate and necessary. In this instance, the question for the ECJ concerned whether the requirement to objectively justify applies to service-based pay. A previous ECJ ruling, in October 1989, in the case of Handels-og Kontorfunktionaerernes Forbund I Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss (Case C-109/88) had suggested that service pay might be seen as a common part of the pay structure and may not therefore be subject to a requirement for justification. However, the Danfoss ruling was almost 20 years old and the ECJ was being asked to consider whether changes in the concept of discrimination and equality over the intervening years should mean that Danfoss was no longer applicable.

Rewarding experience

On 3 October 2006, the ECJ gave its judgment and applied the ruling of the Danfoss case. It held that employers could still justify service-related pay, because ‘length of service goes hand in hand with experience and experience generally enables the worker to perform their duties better’. This means that employers can use financial inducements to reward experience, even where it means that men get paid more than women. In addition, the ECJ ruling goes further by also stating that if there is a job evaluation scheme in place which recognises experience, the employer does not have to demonstrate that the worker who is in receipt of the additional increment(s) has actually acquired the necessary experience to do the job more effectively. The ECJ stops short of declaring that there would be no circumstances under which service-related pay was challengeable, by stating that the worker bringing the equal treatment claim can provide evidence which raises serious doubts as to whether the criterion for length of service actually rewards experience and whether this in turn means that duties are better performed.

Commentary

The fact that the ECJ has upheld service-related payments – while at the same time suggesting that they can be challenged by workers in certain cases – makes it possible for others to challenge pay systems based on length of service. This means that the question of the lawfulness of individual service-related payments is still not without problems and that employers still need to carefully consider the circumstances under which service payments should be made available, along with the reasons why they have provided for such payments.

Sonia McKay, Working Lives Research Institute