THE HEALTH & SAFETY EXECUTIVE v MRS B F CADMAN [2003] UKEAT 0947_02_2210

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2003] UKEAT 0947_02_2210

Case No Appeal No. EAT/0947/02

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

THE HEALTH & SAFETY EXECUTIVEAPPELLANT

MRS B F CADMANRESPONDENT

Before

His Honour Judge J Burke

Date 22 October 2003

[1]APPEARANCES For the Appellant MR N UNDERHILL QC (of Counsel) MISS J EADY (of Counsel) Instructed by: The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS For the Respondent MS TESS GILL (of Counsel) Instructed by: Prospect Prospect House 75-79 York Road London SE1 7AQ HIS HONOUR JUDGE J BURKE QC The Facts This is an appeal by the Health & Safety Executive ("HSE") against a decision of the Employment Tribunal sitting at Manchester, chaired by Mr C J Chapman and sent to the parties on 14 October 2002. By that decision the Tribunal upheld the claim brought by Mrs Cadman, who was and is now employed as a Principal Inspector by HSE, under the Equal Pay Act 1970 and granted a declaration, under section 1 of that Act, that her contract of employment should be modified so that its term as to pay should be no less favourable than the comparable term in the contracts of employment of four male comparators.

[2]HSE have been represented before us by Mr Underhill QC and Miss Eady; Mrs Cadman has been represented by Ms Gill. We are grateful to Counsel for their skilful and erudite arguments.

[3]We regard it as sensible to set out, at the beginning of this judgment, the issue which was central to the Tribunal's decision and is central to this appeal. Mrs Cadman and the four identified male comparators were all employed as Band 2 Principal Inspectors. She, however, is and, since promotion to the rank of Principal Inspector, has been paid at a lower level than each of the male comparators. The differential was, for the year 2001/2002, between about £4,000 and £9,000 gross per annum. The principal reason for this differential was the longer service of the comparators. The central issue was whether their longer service amounted to a genuine material difference between their cases and Mrs Cadman's case, which was not a difference of sex and was objectively justified. Resolution of that issue in HSE's favour would lead to the conclusion that Mrs Cadman, by reason of the provisions of section 1 (3) of the 1970 Act, would not be entitled to an equality clause under sub-sections 1(1) and 1

(2) of the Act which would have the effect of eliminating the differentials of which he complained.

[4]It is apparent that the resolution of this issue is important not only to Mrs Cadman; it is of very considerable potential importance to HSE and its workforce because the differential of which Mrs Cadman complains arises from the general pay structures of HSE and affects, or potentially affects, many employees and to other employers in the public sector (and perhaps also in the private sector) who operate a pay system in which length of service is or has been a significant factor.

[5]We have been told that this is the first case in the United Kingdom in which such a pay system has been directly in issue before an appellate tribunal. We are aware, because Counsel who appeared before us were involved in it, that there has been another similar case before the Employment Tribunal in which HSE is Respondent and which concerns Band 3 inspectors; no decision in that case had been reached at the time of the arguments before us; we understand that the arguments in that case have taken a wider form than that in the present case. In 1999 the Employment Tribunal decided a similar case in which the Advisory Conciliation and Arbitration Service ("ACAS") was the Respondent. We have seen and read a copy of the Tribunal's decision in that case (No. 1304744/98) which was resolved in favour of the employee; no substantive hearing of any appeal in that case took place; and it was not the subject of detailed argument before us.

[6]There can be no doubt, in addition to the wider consequences, that the effect of the Tribunal's decision in this case is, potentially at least, very substantial as between the parties. If Mrs Cadman's pay is to be no less than that of the highest paid of the four male comparators, she will be entitled to an increase in her current pay in the region of £9,000 per annum, about 25% of her contractual pay. She will be entitled to and HSE will have to pay arrears of salary for a period of six years, on the basis that the two year restriction in section 2 (5) of the 1970 Act is ineffective because it is contrary to Community law, as decided by the Employment Appeal Tribunal in Levez vTH Jennings (Harlow Pools) Ltd (No. 2)

[1999] IRLR 764

. Perhaps of wider significance to HSE is the obvious danger that male Principal Inspectors who are paid less than Mrs Cadman's top earning comparator will, if she maintains the success which she achieved before the Tribunal, seek to compare themselves hereafter with Mrs Cadman on the basis that they do like work to hers and that, by what is described as a "ratchet effect" all Band 2 Inspectors, whatever their seniority, and subject to differences in performance, will become entitled to the same pay as the highest earning such inspector.

[7]But, of course, however potentially onerous the possible consequences for HSE, for the public employment sector in general or on a wider basis, the Tribunal below had to and, within the well-known limits of our powers, we have to determine the issues between the parties objectively on the facts (the primary facts were not substantially in dispute) and on the applicable law.

[8]HSE is a non-departmental public body, established under the Health & Safety at Work Act 1974 . It has had delegated responsibility for its own pay policies and pay negotiations since April 1994. Pay is negotiated in each year between HSE and three trade unions who are recognised for collective bargaining purposes; the annual settlement date is 1 August.

[9]HSE is divided into Directorates; Mrs Cadman and three of the four male comparators work in the Field Operations Directorate, which is the largest Directorate, employing about 1,750 of HSE's 4,200 staff. The fourth comparator worked in that Directorate until he was transferred elsewhere in October 2000.

[10]In 1995 HSE and the trade unions agreed upon the Long-Term Pay Agreement ("LTPA"), pursuant to which 132 pay scales were replaced by 7 new pay bands, after a job evaluation study which assessed, among other factors, expertise and in so doing took into account experience. The seven pay bands were subsequently reduced by agreement to six.

[11]It is simpler and more convenient to refer to the employment history of Mrs Cadman and her comparators by reference to these bands, as did the Tribunal. Inspectors on first recruitment were placed in Band 4; after training, they were promoted to Band 3. If and when promoted to the position of Principal Inspector, they would be placed in Band 2 as, at the date of the Originating Application in this case (1 June 2001) and at the date of the Tribunal's hearing, were Mrs Cadman and all of her comparators. Each band has its own pay bracket with a minimum and maximum figure; there is some overlap at the lower end between the brackets for each band. In August 2001 the minimum and maximum figures were, for Band 3, respectively £23,200 and £35,000 and, for Band 2, respectively £33,900 and £45,500.

[12]Mrs Cadman transferred to HSE in June 1990, after working for five and a half years as an Executive Officer in the Department of Social Security. She was promoted to Inspector in Band 3, on completion of her training, in June 1993; and she was further promoted to Principal Inspector in Band 2 in November 1996. At the date of her Originating Application, in the pay year 2000/2001, her annual salary was £35,129.

[13]The four comparators were described by the Tribunal as 'H', 'I', 'J' and 'K'. To take them in order of length of service, 'J' joined HSE on 1 June 1975 (we assume that this was HSE's first day) and was promoted to Band 2 in April 1980. His salary for 2000/2001, as set out in paragraph 9 (v) of the Tribunal's Decision and in a schedule from which the Tribunal, no doubt, took their figures, was £43,119. 'K' joined HSE on the same day and was promoted to Band 2 in August 1980. His salary for 2000/2001 was £44,183. 'I' joined HSE in August 1975 and was promoted to Band 2 in April 1988. His salary for 2000/2001 was £43,354. 'H' joined HSC in April 1985 and was promoted to Band 2 in October 1995, just over a year before Mrs Cadman was so promoted, after having for some time acted up in a Principal Inspector's position. His salary for 2000/2001 was £39,125.

[14]The Tribunal, at paragraph 9 (v) of their decision, set out the differentials for that year between Mrs Cadman and the four comparators as £7,674 in the case of 'J', £8,679 in the case of 'K', £7,834 in the case of 'I' and £3,678 in the case of 'H'. This arithmetic appears to us to be in error; the differentials, on the basis of the figures set out in that paragraph of the Decision, appear to have been about £300 greater in each case; but for present purposes nothing turns on the precise figures.

[15]Historically, over the period of Mrs Cadman's employment, there were four relevant pay systems; we will set out only the essential features of those systems which are more fully described in a chart at page 87 of the bundle of documents before us.

[16]Until 1992 the pay of Inspectors and Principal Inspectors was, in addition to any inflation-based increase, subject to progression by pre-determined annual increments. Those increments were identified by reference to a spinal column; each job or (as they later became) pay band was assigned a range of points on the spinal column; inspectors would move up the relevant range of points on an annual basis until they reached the top of that range, after which increments would be inflation-based only (subject, from 1987, to the award of "extra" points for excellent performance).

[17]An Inspector or Principal Inspector would not necessarily, on first appointment or promotion to his position, start at the bottom of the relevant range. An inspector who had achieved a point higher than the bottom of the range for Principal Inspectors would not, on promotion, go to the bottom of that range and suffer a diminution in his pay; he would enter that range on the basis of a formula which ensured that he did not suffer any loss. A similar result, we were told, might in theory be achieved in the case of someone recruited into HSE from outside so as to maintain his pay level; but that had not happened in the case of any of the four comparators or in any other specific case of which we were told and was not specifically provided for in the scheme; the job of an HSE Inspector, as a regulatory specialist, is not one the equivalent of which is readily to be found elsewhere in industry.

[18]In August 1992 pay progression (i.e. annual increase other than inflation-based increase) ceased to be based merely on service (subject to "extra points") and became performance-related. Performance was assessed by reference to a box mark, between 1 and 4. If assessed at box mark 4, the employee would receive no performance-related increase; otherwise he would receive such an increase, the amount of which was determined by his box mark. Each box mark other than 4 carried with it a pre-determined level of increase in points or steps up the scale. We were told that a box 4 mark was very rare and that in practice all or virtually all relevant employees received an annual pay increase, the size of which was determined as we have described, in addition to an inflation-based increase.

[19]In 1995 the LTPA established the band structure to which we have referred and placed jobs within the new bands, pursuant to the job evaluation survey. As to pay progression, the spinal points system ceased to operate. Instead, in each year a total sum was determined which was available for distribution by way of pay progression; employees would in each year be awarded "equity shares" in that total based on performance; they were given a box mark according to performance; the box mark determined the number of equity shares which they were awarded and therefore the size of their increase in pay; but there remained a minimum and a maximum for each pay band.

[20]After a band maximum was reached by an employee, he would continue to receive an annual increase, in addition to basic salary, determined by performance; but that sum was not and, because he had reached the top of the band, could not be consolidated into basic pay.

[21]The Tribunal found, at paragraph 9 (viii) of their decision, that a consequence of the equity share system introduced by the LTPA was to narrow pay differentials in percentage terms though not in cash terms; and it appears to have been common ground that, contrary to expectations, the LTPA operated so as to slow rather than accelerate progress to the top of the band, at least for the average employee. An evaluation of the LTPA for the purposes of the 1999 pay negotiations identified that it had had relatively little effect on the pre-existing differentials between the pay of men and women in HSE; the Tribunal found (paragraph 9 (xiii)) that the disparity had not at that point been identified by staff as an equal pay issue, although HSE perceived it as an equal pay problem. Thereafter an employment expert advised HSE that length of service gave rise to a possible material difference defence to an equal pay claim but that it would have to be objectively justified. The pay agreement for August 2000 introduced measures to increase convergence. The details are not important; in effect adjustments were made pursuant to which the equity shares allotted to higher-paid Inspectors were reduced and those of the lower-paid were increased.

[22]There was evidence before the Tribunal which spelt out the remuneration of Mrs Cadman on the one hand and each of the four comparators on the other for all years from 1996/7 onwards. It is not necessary for us to go into detail. The Tribunal specifically referred to the fact that between the pay of 'H', who was promoted to Principal Inspector just over a year before Mrs Cadman, and the salary of Mrs Cadman there was a differential of £3,968 in 1997 which increased slightly thereafter but then reduced over the next two years. Although the differential between them had narrowed by 2000/1 the narrowing was insignificant.

[23]In the cases of the other three comparators the differentials narrowed over the same period to a rather more significant extent; for example, the differential between Mrs Cadman's salary and 'K's' salary for the year 1996/7 was £13,154 but for the year 2000/1 was about £9,000; but an element of convergence in that case arose from 'K's' pay having reached the band maximum.

[24]There is no dispute but that the reason for the differentials between Mrs Cadman's salary and those of her comparators was and is almost entirely the differences between their lengths of service. Some element in the differentials in the cases of some of the comparators may have been attributable to performance; but it is accepted that that element was of marginal significance and can be put on one side for present purposes, as can other specific elements related to 'H's' having acted up as a Principal Inspector before his substantive promotion and to other individual features of his case. Such elements, which were not dealt with in the Tribunal's decision, may well become relevant should a Remedies Hearing be necessary in this case; they would appear to go to the extent to which, if Mrs Cadman is entitled to an equality clause under section 1 of the 1970 Act, her pay has fallen short of her entitlement under such a clause; but it is not in dispute that, for the purposes of this appeal, those other elements should be ignored because they cannot materially affect the outcome; and we shall make no further reference to them.

[25]Length of service could affect salary, even in the case of identical performance appraisals, in two ways:(a) because a Principal Inspector with longer service in Band 2 would have had more years to move by annual pay progression towards the maximum for Band 2;

(b) because a Principal Inspector with longer service in Band 3 before promotion to Band 2 would have had longer to move up the Band 3 scale and would, therefore, enter Band 2 on promotion at a higher initial level than a Principal Inspector with shorter service in Band 3 before promotion.

[26]Such differentials would continue until the lesser-earning Principal Inspector had progressed to the maximum salary for Band 2 and had thus caught up with others who had achieved that position.

[27]Thus, in the present case, because of his longer service in Band 3, 'H', when promoted a year or so before Mrs Cadman, entered Band 2 at a substantially higher level than did Mrs Cadman, whose service in Band 3 had been brief and whose salary before promotion, in contrast to that of 'H' at the same stage, was below the maximum level for Band 2.

[28]The Tribunal's findings of fact go beyond those which we have summarised above. It is not, however, necessary for us to go into them further in this section of this judgment, in which we are seeking to set the scene for what follows. The Issues before the Tribunal

[29]It was common ground before the Tribunal that Mrs Cadman was employed on work rated as equivalent to that of the four comparators within the meaning of section 1 (2) (b) of the 1970 Act. The jobs of all of them had been put into Band 2 in the job evaluation study which preceded or formed part of the LTPA in 1995.

[30]Accordingly, Mrs Cadman was entitled to an equality clause in her contract of employment whereby her salary would be the same as those of her comparators (thus, seemingly, entitling her to the same salary as the highest-earning comparator) unless HSE could show that the differentials between her salary and those of the comparators were genuinely due to a material factor which was not the difference of sex and which was a material difference between her case and those of the comparators, pursuant to section 1 (3) of the 1970 Act.

[31]It was also common ground before the Tribunal that the factor which created the differentials complained of (save to an immaterial extent – see paragraph 24 above), i.e. length of service, had a disproportionate impact as between male and female Band 2 employees and was, therefore, indirectly discriminatory. This feature occurred because, overall, women in Band 2 had shorter service than men. Whether it arose because women joined the service of HSE later, took career breaks or were promoted later, or a combination of those factors, does not matter; the fact of disproportionate impact was not in dispute.

[32]The statistics demonstrated that, as at April 1999, 47% of men but 20% of women had over twenty years service and 18% of men but 47% of women had less than 5 years service. The average length of service of the 17 female Band 2 Inspectors was 4.4 years; the average length of service of the 119 male Band 2 Inspectors was 16.3 years; there was an average difference in pay between those females and males of £3,527 per annum.

[33]Mr Underhill QC pointed out that there was no complaint or allegation of direct sex discrimination; the incremental pay system, at all stages, had applied equally to men and women; the overall majority of Band 2 Inspectors were men and many of them must have been paid at a rate lower than those of 'I', 'J' and 'K', if not 'H'. However, the absence of direct sex discrimination does not, as we see it, bear on the issues which the Tribunal had to resolve. The acceptance that the incremental pay system, based on length of service, produced a disproportional impact as between men and women, and was therefore indirectly discriminatory, brought with it a crucial consequence, namely that HSE's section 1 (3) defence could not succeed unless they also established that the incremental pay system was objectively justified on a basis unrelated to sex.

[34]In Bilka-Kaufhaus GmbH v Weber Von Hartz

[1987] ICR 110

(" Bilka-Kaufhaus "), in the context of a pension scheme which required that part-time workers, in order to qualify, must have been employed for twenty years, of which fifteen years were in full-time employment, but made no such requirement of full-time workers, where it was alleged that that requirement applied to a far greater number of women than men, the European Court of Justice said in its judgment, at paragraphs 29-31: 29 "If, therefore, it should be found that a much lower proportion of women than of men work full-time, the exclusion of part-time workers from the occupational pensions scheme would be contrary to Article 119 of the Treaty where, taking into account the difficulties encountered by women workers in working full-time, that measure could not be explained by factors which exclude any discrimination on grounds of sex. 30 However, if the undertaking is able to show that its pay practice may be explained by objectively justified factors unrelated to any discrimination on grounds of sex there is no breach of Article 119. 31 The answer to the first question referred by the national court must therefore be that Article 119 of the E.E.C. Treaty is infringed by a department store company which excludes part-time employees from its occupational pension scheme, where that exclusion affects a far greater number of women than men, unless the undertaking shows that the exclusion is based on objectively justified factors unrelated to any discrimination on grounds of sex." The judgment continued, at paragraph 36: 36 "It is for the national court, which has sole jurisdiction to make findings of fact, to determine whether and to what extent the grounds put forward by an employer to explain the adoption of a pay practice which applies independently of a worker's sex but in fact affects more women than men may be regarded as objectively justified economic grounds. If the national court finds that the measures chosen by Bilka correspond to a real need on the part of the undertaking, are appropriate with a view to achieving the objectives pursued and are necessary to that end, the fact that the measures affect a far greater number of women than men is not sufficient to show that they constitute an infringement of Article 119."

[35]This decision was followed by the European Court of Justice in Enderby v Frenchay Health Authority

[1994] ICR 112

; see the judgment at paragraph 14 which is in these terms: 14 "However, it is clear from the case law of the court that the onus may shift when that is necessary to avoid depriving workers who appear to be the victims of discrimination of any effective means of enforcing the principle of equal pay. Accordingly, when a measure distinguishing between employees on the basis of their hours of work has in practice an adverse impact on substantially more members of one or other sex, that measure must be regarded as contrary to the objective pursued by Article 119 of the Treaty, unless the employer shows that it is based on objectively justified factors unrelated to any discrimination on grounds of sex."

[36]In Rainey v Greater Glasgow Health Board

[1987] ICR 129

Bilka-Kaufhaus was applied in the United Kingdom for the first time, at least at an appellate level. The Appellant was a female prosthetist who became employed in a newly-established prosthetic fitting service within the National Health Service in Scotland; she was paid on standard Whitley Council terms, as were other prosthetists of both sexes who had not been previously employed by the private contractors by whom that service was provided to the NHS before the new arrangements. The new service also recruited prosthetists who had previously been privately employed by the contractors; they remained on the terms of employment which they had received from the contractors, which included higher salaries than those of the Appellant and others in her position.

[37]The Appellant's equal pay claim failed at every level up to and including the House of Lords. Lord Keith of Kinkel, with whom the other members of the House agreed, having referred to paragraph 36 of Bilka-Kaufhaus , concluded that the grounds on which the employers relied for their section 1 (3) defence – which were, in brief, the need to attract the privately-employed prosthetists into becoming the nucleus of the new public prosthetic service – were capable of constituting a material difference and that, on the facts as found, were objectively justified.

[38]At page 143 Lord Keith set out that objective justification test was part of domestic law; and at page 145E, having set out section 1 (1) (b) of the Sex Discrimination Act 1975 (which defines indirect discrimination), continued in these terms:

"This provision has the effect of prohibiting indirect discrimination between women and men. In my opinion it does not, for present purposes, add anything to section 1 (3) of the Act of 1970, since, upon the view which I have taken as to the proper construction of the latter, a difference which demonstrated unjustified indirect discrimination would not discharge the onus placed on the employer."

[39]In Strathclyde Regional Council v Wallace

[1998] ICR 205

, unpromoted women teachers made equal pay claims against their employers on the basis that they did like work to that of male colleagues who had been promoted and were paid at a higher rate. The House of Lords affirmed the decision of the second division of the Court of Session which had reversed the decisions of the Employment Tribunal and the Employment Appeal Tribunal in favour of the Applicants.

[40]Lord Browne-Wilkinson, with whom the other members of the House agreed, explained, at page 211, that although the Tribunal had found that there were significant, relevant and genuine factors which did not in any way relate to sex which explained the differential between the Applicants and their male comparators, the Tribunal had wrongly introduced the concept of justification into the case. He continued, at pp. 211F to 212C as follows:

"How then did the industrial tribunal come to mislead itself by introducing into the case the concept of "justification"? The answer is that they wrongly thought that the authorities demanded such justification in every case where an employer seeks to establish a subsection (3) defence whereas, on a proper reading, the question of justification only arises where a factor relied upon is gender discriminatory. Although in the present case there is no question of gender discrimination, the authorities are in such a state of confusion that it is desirable for your Lordships to seek to establish the law on a clear and sound basis. … Under the Sex Discrimination Act 1975, direct sexual discrimination is always unlawful. But, both under the Sex Discrimination Act 1975 and under Article 119, indirect discrimination is not unlawful if it is "justified:"

Sex Discrimination Act 1975, section 1 (1) (b) (ii); Bilka-Kaufhaus …Indirect discrimination can be "justified" if it is shown that the measures adopted by the employer which cause the adverse impact on women "correspond to a real need on the part of the [employer], are appropriate with a view to achieving the objectives pursued and are necessary to that end:" Rainey …"

[41]In the present case, as we have already made clear, the factual position was the opposite to that in Strathclyde ; it was conceded that the incremental pay system, including as it did a substantial element dependent upon length of service, had a sufficiently disproportionate impact to raise a presumption of indirect discrimination. Accordingly, in the light of Bilka-Kaufhaus , Rainey and Strathclyde , the issue which the Tribunal had to decide was whether the use of length of service as a factor or criteria in the incremental pay system was objectively justified.

[42]HSE sought to establish such justification along two separate routes. They argued that the decision of the European Court of Justice in Handels-og Kontorfunktionærenes Forbund i Danmark v Dansk Arbejdsgiverforening, ex parte Danfoss A/S

[1991] 1 CMLR 8

usually and for obvious reasons shortened to " Danfoss ", established that the use of length of service as a criterion in pay was generally objectively justified and did not need specific justification on the facts of each individual case. Alternatively, they argued that there was in this case such specific justification on the facts. The Tribunal had to decide whether HSE had established justification by either route. The Tribunal's Decision

[43]The Tribunal first concluded, at paragraphs 23 and 24 of their Decision, that to the extent to which Danfoss stated that an employer does not need to provide specific factual justification for the use of the criterion of length of service in the calculation of pay in an individual case, that proposition had been watered down by subsequent decisions of the European Court of Justice and that, pursuant to Bilka-Kaufhaus , HSE had to demonstrate specific justification in the circumstances of the individual case.

[44]The Tribunal next decided, at paragraph 25 of their Decision, that an employer who sought to justify a pay differential must have applied his mind to the justifying reasons at the time of the creation of the differential and that in effect, what Mr Underhill QC described as "after the event justification" would not suffice.

[45]The Tribunal then turned to the facts, considering first at paragraphs 27 to 32 the position as between Mrs Cadman and 'H' and, secondly, at paragraphs 33 to 34, the position as between Mrs Cadman and the other comparators. In each case the Tribunal decided that HSE had not established justification.

[46]Accordingly the Tribunal determined that Mrs Cadman's claim succeeded and that she was entitled to the declaration to which we have referred at the beginning of this judgment. The Danfoss Issue

[47]In Danfoss , the Danish Industrial Arbitration Board was required to adjudicate upon a dispute arising from the pay structure of the employers ( Danfoss ). Employees were paid two sets of supplements in addition to their basic wages; the first set of supplements was paid on the basis of the employee's skill, independence, responsibility and quality of work; the second set was paid on the basis of training and length of service. The average pay of male employees was 6.85% higher than that of female employees. The Board referred to the European Court of Justice a number of questions; question 2 (a), set out at paragraph 5 of the Court's judgment, was: 2 (a) "Is it contrary to the directive to give to employees of a different sex who do the same work or work of equal value, over and above the basic pay for the job, special supplements for length of service, special training, etc?" A similar question was asked about objective criteria such as mobility which was one of the criteria for the first set of supplements.

[48]In answering the question as to the first set of supplements, the Court, at paragraph 22 of its judgment, expressly referred to Bilka-Kaufhaus in terms which make it clear that that principle governed the instant case. As to the second set of supplements, the Court, at paragraphs 23 to 25, said: 23 "In the second place, as regards the criterion of training, it is not to be excluded that it may work to the disadvantage of women in so far as they have had less opportunity than men for training or have taken less advantage of such opportunity. Nevertheless, in view of the considerations set out in [ Bilka-Kaufhaus ] the employer may justify remuneration of special training by showing that it is of importance for the performance of specific tasks entrusted to the employee. 24 In the third place, as regards the criterion of length of service, it is also not to be excluded as with training, but it may involve less advantageous treatment of women than of men in so far as women have entered the labour market more recently than men or frequently suffer an interruption of their career. Nevertheless, since length of service goes hand in hand with experience and since experience generally enables the employee to perform his duties better, the employer is free to reward him without having to establish the importance it has in the performance of specific tasks entrusted to the employee. 25 In those circumstances the answer to questions 1 (b) and 2 (a) and (c) must be that the Equal Pay Directive must be interpreted as meaning that where it appears that the application of criteria, such as the employee's mobility, training or length of service, for the award of pay supplements systematically works to the disadvantage of female employees: … the employer does not have to provide special justification for recourse to the criterion of length of service."

[49]Mr Underhill QC submitted that the importation into equal pay claims of the requirement of objective justification in Bilka-Kaufhaus and subsequent domestic decisions was "judge made law", i.e. not derived from the words of the Equal Pay Directive or Article 141 (previously Article 119) of the Treaty of Rome themselves, and that, in paragraphs 24 and 25 of Danfoss , the European Court of Justice can be seen to have been making further law, by which of course the domestic courts of the United Kingdom are bound, by establishing as a matter of principle that, in a disproportionate impact case, where the cause of that disproportionate impact is the factor of length of service, the employer does not need to show that the use of that factor is necessary or otherwise objectively justifiable on the facts of the individual case; in the judgment of the European Court of Justice length of service goes hand in hand with experience and experience generally enables the employee to perform his duties better. For that reason, in contrast to other factors such as training, or adaptability to variable hours, or varying places of work ( Danfoss , paragraphs 22 and 23), the employer is free to reward length of service without the need to provide specific justification for doing so, even if, by doing so, he produces a disproportionate impact between males and females. Length of service is of itself a sufficient justification for a pay system which differentiates between employees on the basis of length of service and has a disproportionate impact between male and female employees.

[50]If Danfoss remains good law and if this case cannot be validly distinguished from it, then Ms Gill accepts that HSE's appeal must succeed. On the basis of their conclusion that the differences between the pay of Mrs Cadman and that of her male comparators were attributable to length of service (either in Band 2 or in Band 3 or both), the Tribunal ought, on the basis of the application of Danfoss , to have decided that no specific justification of the use of the factor of length of service was required and that therefore HSE's section 1 (3) defence to Mrs Cadman's claim succeeded; and they ought, therefore, to have dismissed Mrs Cadman's claim.

[51]It does not appear that paragraphs 24 and 25 of the European Court of Justice's judgment in Danfoss had been directly considered at an appellate level in the courts of the United Kingdom. The general principles established in Bilka-Kaufhaus have been considered several times; we have referred earlier to Rainey and to Strathclyde ; the correct approach to that principle was further examined in Barry v Midland Bank Plc in the Court of Appeal

[1999] ICR 319

and in the House of Lords

[1999] ICR 859

and in Allonby v Accrington and Rossendale College

[2001] IRLR 364

in which, in the Court of Appeal, Sedley LJ, bringing together the earlier decisions, said at paragraphs 26 to 29 of his judgment: 26 "In my judgment, the employment tribunal has failed to apply the scrutiny which the law required when a discriminatory condition is said to be justifiable. Moreover such reasons as it gives do not stand up in law. 27 The major error, which by itself vitiates the decision, that nowhere, either in terms or in substance, did the Tribunal seek to weigh the justification against its discriminatory effect. On the contrary, by accepting that 'any decision taken for sound business reasons would inevitably affect one group more than another group', it fell into the same error as the EAT in Brook and Enderby and disabled itself from making the comparison. 28 Secondly, the Tribunal accepted uncritically the college's reasons for the dismissals. They did not, for example, ask the obvious question why departments could not be prevented from overspending on part-time hourly-paid teachers without dismissing them. They did not consider other fairly obvious measures short of dismissal which had been canvassed and which could well have matched the anticipated saving of £13,000 a year. In consequence, they made no attempt to evaluate objectively whether the dismissals were reasonably necessary – a test which, while of course not demanding indispensability, requires proof of a real need. 29 In this situation it is not enough that the Tribunal should have posed, as they did, the statutory question 'whether the decision taken by the college was justifiable irrespective of the sex of the person or persons to whom it applied'. In what are extended reasons running to 15 closely-typed pages, there has to be some evidence that the Tribunal understood the process by which a now formidable body of authority requires the task of answering the question to be carried out and some evidence that it has in fact carried it out. Once a finding of a condition having a disparate and adverse impact on women had been made, what was required was at the minimum a critical evaluation of whether the college's reasons demonstrated a real need to dismiss the applicant; if there was such a need, consideration of the seriousness of the disparate impact of the dismissal on women including the applicant; and an evaluation of whether the former were sufficient to outweigh the latter. There is no sign of this process in the Tribunal's extended reasons…"

[52]Gage J said, at paragraphs 63 and 64: 63 "The principle upon which the employment tribunal must act on this issue is not in dispute. In Hampson v Department of Education and Science

[1989] IRLR 69

, Balcombe LJ in a dissenting judgment said…: 'In my judgment "justifiable" requires an objective balance between the discriminating effect of the condition and the reasonable needs of the party who applies the condition.' 64 This principle was approved and amplified by the House of Lords in Barry v Midland Bank Plc

[1999] IRLR 581

(see the speech of Lord Nicholls at p.586-587)."

[53]We will need to return to these passages later in this judgment. They must be applied if the principle in Danfoss , on which Mr Underhill QC relies, is no longer binding; but they do not assist us in our task of deciding whether that principle is or is not now binding.

[54]Counsel's industry revealed only one appellate decision in the United Kingdom in which the effect of a pay differential between a male and female employee based on length of service had been considered. In Shields v E Coomes (Holdings) Ltd

[1978] ICR 1159

the facts were that a female counterhand in a betting shop was paid at a lower rate than a male counterhand. The employers justified the differential on the basis that the males were only employed in areas in which it was anticipated that there might be trouble from customers and others with which only a man could properly cope.

[55]In the Court of Appeal Lord Denning MR said of section 1 (3) of the 1970 Act, at page 1170:

"This subsection deals with cases where the woman and the man are doing "like work" but the personal equation of the man is such that he deserves to be paid at a higher rate than the woman. Even though the two jobs, viewed as jobs, are evaluated equally, nevertheless there may, quite genuinely, be "material differences" between the two people who are doing them – which merit a variation in pay – irrespective of whether it is a man or woman doing the job. One instance is length of service. In many occupations, a worker, be he man or woman, gets an increment from time to time, according to his seniority or length of service."

Mr Underhill QC accepted that this was obiter dicta ; but he said, of course correctly, that it was of high authority. However, the other two members of the Court of Appeal, Orr and Bridge LJJ did not make any similar remark; and the context in 1978 was very different. Bilka-Kaufhaus was yet to be decided, some seven years ahead; Danfoss was decided a further four years later; no question arose as to disproportionate impact or as to the employer's need to establish objective justification in addition to genuine material difference in order to avoid the effect of the difference in pay between the male and female counterhand. For these reasons, we do not regard what was said by Lord Denning MR in Shields as enhancing the strength of Mr Underhill's case.

[56]Ms Gill did not seek to rely on Shields or on any domestic decision in support of her argument that the Tribunal were right to conclude that Danfoss was no longer binding authority; her arguments were based on decisions of the European Court of Justice since Danfoss . Those decisions are Nimz v Freie und Hansestadt Hamburg

[1991] IRLR 222

(" Nimz "), Enderby (reference above), Gerster v Freistaat Bayern

[1998] ICR 327

(" Gerster ") and Hill v Revenue Commissioners

[1999] ICR 48

(" Hill ").

[57]In Nimz the complainant was a part-time employee of the city of Hamburg. Under the relevant collective agreement employees in her grade moved to a higher salary scale after six years service if they worked at least three quarters of the normal working hours of a full-time employee; but if they worked for between half and three quarters of such hours, as did the complainant, only half of the period of service was taken into account. 90% of part-timers working less than three quarters of the normal hours of a full-time employee were women; 35% of the employees working longer hours were women.

[58]The Hamburg Labour Court referred two questions to the European Court of Justice; by the first it asked whether there was a violation of Article 119 of the EEC Treaty on the facts which we have outlined. Advocate-General Darmon in his opinion, at paragraphs 9 to 11, advised that, although it was for the national court to determine on the facts of the individual case whether there was or was not objective justification, the court was able to specify that arguments which were too general could not be considered as objective criteria; and, having cited paragraph 24 of Danfoss (in a different English translation from that which appears in the report before us), he said at paragraph 14: 14 "One may come to the conclusion that it is necessary to take service into account not in years but in numbers of hours worked as the British Government suggests, but on condition that this involves only passage to a different job, bringing with it new responsibilities and thus requiring a certain amount of experience. In this case, however, the required length of service only permits moving to a higher salary scale, without any alternation in the nature of the duties to be carried out. It would therefore seem that taking into account experience in terms of number of hours worked would not be objectively justified."

[59]The court in its judgment referred at paragraph 12 to the need, established of course in Bilka-Kaufhaus , for objective justification and continued at paragraphs 14 to 15 as follows: 14 "…In fact, although seniority goes hand in hand with experience which, in principle, should allow the employee to carry out his tasks all the better, the objectivity of such a criterion depends on all the circumstances in each case and notably on the relationship between the nature of the duties performed and the experience afforded by the performance of those duties after a certain number of working hours had been worked. Nevertheless, it is for the national court, which is the sole judge of the facts, to determine in the light of all the circumstances whether and to what extent a provision of a collective agreement such as that in question is justified by objective factors unrelated to any discrimination on grounds of sex. 15 The answer to the first question referred by the national court must therefore be that Article 119 of the EEC Treaty must be interpreted as precluding a collective agreement, entered into within national public services, from providing for the seniority of workers performing at least three-quarters of normal working time to be fully taken into account for reclassification in a higher salary grade, where only one half of such seniority is taken into account in the case of workers whose working hours are between one-half and three-quarters of those normal working hours, where the latter group of employees comprises a considerably smaller percentage of women, unless the employer can prove that such a provision is justified by factors which depend for their objectivity in particular on the relationship between the nature of the duties performed and the experience afforded by the performance of those duties after a certain number of working hours had been worked."

[60]There is, in our judgment, an important difference between a distinction between part-time employees and full-time employees on the basis of the hours which they work and a distinction between different groups of full-time employees on the basis of their length of service. The crucial feature in Nimz did not lie in length of service but in the different hours worked by the two groups of employees; those who worked the same hours or whose hours fell within the same bracket would obtain the same benefit after the same length of service. We believe that that is the reason for the emphasis in paragraph 15 of the court's judgment on the difference in hours worked. The court should not, as we see it, be taken to have been departing from or watering down what it had very recently and very clearly stated in Danfoss ; indeed, the court in its judgment in Nimz makes no express reference to Danfoss .

[61]Accepting, as we do, that the European Court of Justice's approach to its past decisions does not necessarily require, if it wishes to depart from a past decision, the pattern of express reference and distinguishing so familiar in our domestic setting, nevertheless, it would be surprising if the court had intended to depart from or to modify its own recent decision while not indicating that it was so intending and without any reference to that decision.

[62]We therefore do not agree with the Tribunal in the present case that the effect of the relevant paragraphs of Danfoss has been "qualified generally" by the decision of the European Court of Justice in Nimz , at least in a case in which length of service creates a differential between groups of full-time employees.

[63]In Enderby the complainant female speech therapist compared herself with a male clinical psychologist and a male pharmacist. All were full-time workers. Ms Gill, relied upon the passage in the judgment of the European Court of Justice, at paragraph 14, which we have already set out at paragraph 35 of this judgment; but the employers did not rely on length of service as a justifying factor for the differential upon which the claim was based; and Danfoss was only referred to on different issues; see paragraphs 18 and 25 of the court's judgment. Paragraph 14 of that judgment is a further expression of the principle established in Bilka-Kaufhaus and does not bear on the crucial passages in Danfoss or on any supposed qualification of those passages in Nimz .

[64]Gerster was another part-timers case; the facts were similar to those of Nimz ; but the hours worked were relevant to access to promotion rather than to higher pay. At paragraph 49 of his opinion, Advocate-General La Pergola expressed the view that Advocate-General Darmon in Nimz had "clarified the relationship" between Nimz and Danfoss ; but he did not suggest that the court itself in Nimz had adopted any such clarification; and the court in Gerster , while referring at paragraph 34 to paragraph 14 of its judgment in Nimz , made no reference to Danfoss and cannot be taken to have gone any further towards qualifying the relevant passages in Danfoss than it had in Nimz .

[65]We must refer, finally in this part of our judgment, to Hill . Pay increases for full-time civil servants in Ireland were made in accordance with a scale of points, one point being credited for each year of satisfactory service. Job-sharers who converted from part-time to full-time work were allocated points on the basis of each year of part-time work, was credited as half a point, representing actual time worked. The great majority of such employees were women.

[66]The Irish Labour Court referred preliminary questions to the European Court of Justice which asked, in effect, whether:(i) on the facts there was direct discrimination?

(ii) did the employers have to provide special justification for recourse to the criterion of service, defined as "actual time worked" in awarding incremental credit?

(iii) could such a practice be objectively justified by reference to factors other than the acquisition of a particular level of skill and experience?

[67]Advocate-General La Pergola in his Opinion, at paragraph 32, said that the court was called on to clarify the passage (crucial to Mr Underhill QC's argument) in paragraph 24 of its judgment in Danfoss and, at paragraph 34 of his Opinion, expressed the view that length of service was a factor which could properly be taken into account in the justification of an individual decision as to pay, but that whether length of service could be justified on a general basis gave rise to doubts. He continued: 34 "The criterion of length of service must be supported by adequate justification where it is applied to a series of work relationships in respect of which it is far from proved that length of service can be equated with competence. Different treatment of part-time and full-time workers is not justified where it is assumed, in a general way and merely on the basis of strictly proportional criteria, that workers in the first category are per se less deserving of pay supplements. Thus it is in our case. The result is the discrimination we have just seen between men and women, given the fact that the great majority of part-time workers are women."

[68]The Advocate-General continued, at paragraphs 35 and 37, as follows: 35 "I must now consider whether the solution adopted by the court in Danfoss may profitably be transposed to the case in point. I do not think it can. Indeed, it seems clear to me that the principle laid down in that case not only must be construed having regard to the above-mentioned caveats but also must apply only to length of service reckoned in terms of years and not of hours actually worked. In that decision the court…gave an important explanation of the way in which the criterion of length of service must be used in order to avoid unlawful discrimination between men and women." He then quoted from paragraph 24 of the court's judgment in Danfoss and said:

"To my mind, this explanation leads us to draw a distinction between length of service reckoned in years – which the employer can take into consideration in deciding on promotions "without having to establish the importance it has in the performance of specific tasks entrusted to the employee"… - and length of service reckoned in hours worked, whose relevance for the purposes of progression to a higher rate of pay must, in contrast, be proved by objective evidence. … 37 It follows that the criterion of length of service, defined as time actually worked , needs objective justification. The criterion will be justified where it is clear that full-time employment is the only solution to be adopted in order for the employee to obtain the requisite experience for his intended duties. Otherwise, a different sort of justification will have to be found that will in any event satisfy the criteria laid down by the court in [ Bilka-Kaufhaus ]..."

[69]These passages and a further passage to which Ms Gill referred us, at paragraph 44 of the Advocate-General's Opinion, reveal, in our judgment, that the Advocate-General was seeking to limit the application of the relevant passages in Danfoss to cases in which the factor which led to higher pay was length of service reckoned in years and was seeking to exclude from the principles in Danfoss cases in which the factor was based on hours worked – as in Nimz .

[70]However, the court in its judgment did not refer to Danfoss at all or to the extent to which length of service may be a factor on which the employer can rely by way of objective justification of disparate treatment. At paragraphs 43 and 44 the court responded to the questions before them in these terms: 43 "The onus is therefore on the Revenue Commissioners and the Department of Finance to establish before the Labour Court that the reference to the criterion of service, defined as the length of time actually worked, in the assessment of the incremental credit to be granted to workers who convert from job-sharing to full-time work is justified by objective factors unrelated to any discrimination on grounds of sex. If such evidence is adduced by those authorities, the mere fact that the national legislation affects far more women than men cannot be regarded as constituting a breach of Article 119 of the Treaty and, consequently, a breach of the Directive. 44 The answer to the questions submitted must therefore be that Article 119 of the E.C. Treaty and Directive (75/117/E.E.C.) are to be interpreted as precluding legislation which provides that, where a much higher percentage of female workers than male workers are engaged in job-sharing, job-sharers who convert to full-time employment are given a point on the pay scale applicable to full-time staff which is lower than that which those workers previously occupied on the pay scale applicable to job-sharing staff due to the fact that the employer has applied the criterion of service calculated by the actual length of time worked in a post, unless such legislation can be justified by objective criteria unrelated to any discrimination on grounds of sex."

[71]The Tribunal said at paragraph 29 of its decision in the present case that the European Court of Justice did not disapprove of the passages in the Advocate-General's Opinion, to which we have referred. That is true; but it did not adopt them and, indeed it appears to have steered clear of them. We do not believe that any watering down of Danfoss , where the relevant factor is that of length of service in years and not hours actually worked, can be derived from the court's judgment in Hill ; the distinction between those two criteria is fundamental to the passages in the Opinion of the Advocate-General, to which we have referred.

[72]Ms Gill referred to academic articles in support of her argument in this area; we hope that neither Ms Gill nor the authors will regard us as disrespectful if we say of them only that we have read and considered them; however helpful they may be we must proceed upon the basis of the case law rather than commentaries upon the case law; and Ms Gill accepted that there has not been a decision of the European Court of Justice on length of service as a criterion in the case of full-time workers, as opposed to hours worked as a criterion where the discrimination relied upon was between full-time and part-time workers. The latter category of case appears to us to be distinct from and to raise different questions from the former. In our judgment, so far as the former category is concerned, the cases since Nimz do not qualify Danfoss any further than did Nimz itself; and Danfoss remains applicable to cases which fall within the former category.

[73]Neither party invited us to make a reference in this case to the European Court of Justice. Ms Gill candidly said that we should, as the Tribunal had to, do our best with unsatisfactory material. Having considered the case law, the writings to which we were referred and the arguments of the parties, we conclude, for the reasons we have set out above, that the principles established in paragraphs 24 and 25 of the European Court of Justice's judgment in Danfoss have not been qualified in such a way as, in effect, to substitute for those principles a very different principle, namely that the employer in a case involving no distinction between full-time and part-time workers but a distinction between groups of full-time workers, must provide special justification for recourse to the criterion of length of service.

[74]But, can Danfoss be distinguished from the present case? Ms Gill submitted that it can and should, on the basis that in Danfoss the employers had continued to pay the second set of supplements for length of service up to the time of the complaint whereas, in the present case, the pay structure rewarded only past service; no such new reward was made after 1992 from which date pay progression was based on performance; but the effect of earlier awards based on service was not removed and was retained within the pay structure. By changing the system, Ms Gill submitted, HSE must be taken to have accepted that longer service did not go hand in hand with experience and thereby automatically justify extra reward for length of service; and, therefore, the essential underpinning to paragraphs 24 and 25 of Danfoss was no longer in place.

[75]We do not accept this argument. First, while the way in which pay progression is calculated has changed, we accept Mr Underhill's point that reward for length of service has not been limited to service prior to 1992. This is a point to which we will return at a later stage of this judgment; but for present purposes we regard it as correct that, while service alone has not provided entitlement to pay progression, for each year of service under the pay structure operating from 1992 a Principal Inspector has been and still is entitled to an increase in pay in addition to an inflationary increase (unless he or she is marked so low for performance as not to qualify such an increase – an event which, we were told, rarely or never happens), until he or she reaches the band maximum, after which such a supplement is no longer consolidated into basic pay. Each Principal Inspector will proceed in annual steps (the size of which depends on performance) towards the maximum.

[76]Secondly, it does not in our judgment follow from the change in the system that HSE must be taken to have acknowledged that length of service in the case of Principal Inspectors does not go hand in hand with experience which would enable the Inspectors to do their work better. We do not see why, even if the pay system had been changed to one in which there was no annual increase beyond inflation, the principle in Danfoss should not apply to the differentials produced by the old system which, in practical terms, could not be eliminated, save by the passage of time.

[77]In short, we do not regard the differences between the facts of Danfoss and the facts of the present case relied upon by Ms Gill as to be such as to enable us to distinguish the former from the latter and to conclude that the principles in Danfoss do not apply to the present case.

[78]For those reasons, we have come to the conclusion the Tribunal were wrong in law to conclude, in paragraphs 23 and 24 of their decision, that they were no longer bound by the relevant paragraphs of the European Court of Justice in Danfoss (which, incidentally, they did not seek to distinguish), that the Tribunal were bound by those principles and that they ought, therefore, to have dismissed Mrs Cadman's claim on the basis that there was no requirement on HSE to produce specific justification for the use of the criterion of length of service in their pay structure.

[79]We regard it as necessary to add that we are not wholly convinced that length of service in a job necessarily and in every case does carry with it greater valuable experience which would in practice automatically justify higher pay. The industrially-experienced members of this division of the Employment Appeal Tribunal think it likely (although there was no such evidence in this case, as we understand it) that generally women change jobs more often than men, not only by reason of career breaks and that, if that is so, women of wholly equal competence to men may be disadvantaged by a pay system based on rewarding length of service. However, we are not a fact-finding Tribunal. Having concluded that the principles set out in Danfoss remain good law, and that the present case cannot be satisfactorily distinguished from Danfoss, we must and do follow and apply those principles in the present case.

[80]It was not in dispute that if we reached the conclusion which we have just expressed, it would follow that HSE's appeal would be allowed and Mrs Cadman's claim would be dismissed. However, the appeal was fully argued before us on the alternative basis that there was, in law, a need for specific justification on the individual facts of this case; and tempting though it is not to embark upon those alternative arguments, because it is likely that this case will go further and, if it does, our response to at least some of those arguments may be helpful, and because of the time and skill devoted to the preparation and deployment of those arguments, we regard it as necessary to address and respond to them or at least to the most important of them. After the Event Justification

[81]The Tribunal divided the section of their decision in which they set out their conclusions into four parts: one, paragraphs 23 to 26 under the heading " The Law "; two and three, paragraphs 27 to 35 where they set out their factual conclusions upon the comparison between Mrs Cadman and 'H' (paragraphs 27 to 32) and upon the comparison between Mrs Cadman and 'I', 'J' and 'K' (paragraphs 33 to 34); four, their final summary in paragraph 35.

[82]Under the heading " The Law " they first addressed the issue as to whether Danfoss had been watered down by subsequent authorities. They then turned, at paragraphs 25 and 26 to a wholly different point, which Mr Underhill described as "after the event justification" and Ms Gill described as "contemporaneous justification". Both are descriptions of the same concept which the Tribunal plainly regarded as a matter of law, that in order to demonstrate objective discrimination of a pay system which had disproportionate impact as between men and women, the employer cannot rely upon reasons which he did not have in mind at the relevant time and has only subsequently put forward. Perhaps the best description of the concept is "lack of contemporaneous justification"; but whatever the description, it is the concept which is important; and it is probably best for us to set out the Tribunal's own description of it, at paragraph 25: 25 "The test referred to in Bilka and formulated above uses the word "chosen" rather than "adopted" or "taken". In the opinion of the Tribunal this necessitates that the employer must have applied his mind to the existence of the pay differential and adopted measures, which at the time were adopted for the reasons subsequently advanced by the employer to explain the differential. Therefore, the Tribunal unanimously concluded that as on the evidence at no stage had the employers consciously addressed in their documentation the justification issue and explained it or justified it then it could not be said that the pay differentials that existed in this case had been "chosen" by the employer to recognise pre-existing service of predominantly male employees. It was instead a justification after the event."

[83]Mr Underhill acknowledged that he could not go behind the finding of fact that HSE had not consciously addressed at an earlier stage in their documentation the justification which they sought at the hearing to put forward in response to Mrs Cadman's claim; but he submitted that the Tribunal had erroneously directed themselves that, whatever the strength of the justification put forward, once the Tribunal had made that finding of fact HSE's section 1 (3) defence was bound to fail; and that it failed, at least partly, for that reason.

[84]Mr Underhill submitted that there is no requirement in law that the employer must have had the reasons which were subsequently advanced as justification for the pay differential in mind at the time when the relevant measures were adopted; and Ms Gill accepted that this was so. Such a requirement cannot be identified in any of the domestic or Community decisions; and it does not seem to have been advanced by Counsel on behalf of Mrs Cadman (not Ms Gill) in his submissions to the Tribunal.

[85]In disagreement with the Tribunal, we do not regard the use by the European Court of Justice in Bilka-Kaufhaus of the word "chosen" in paragraph 36 of their judgment as opposed to "adopted" or "taken" as of any particular significance (quite apart from any differences of nuance arising from translation). The word "chosen" in that paragraph refers to the pay practice which was under scrutiny; yet in the previous sentence the words "adoption of a pay practice" appear. Even if, which we doubt, the court had intended that the word "chosen" to mean something different from the word "adopted" there is nothing to indicate that it meant or was intended to mean that the employers who chose or adopted the particular pay system or element of that system which was under scrutiny should, in order to establish objective justification, have to establish that they had the justifying reasons or factors in mind at the time when they so chose or adopted.

[86]In any event, whatever the semantic arguments, in our judgment the Tribunal were not concerned with the subjective thinking of the employer at the time when the relevant measures were adopted or indeed at any time, but with whether on the facts the discriminatory effect of the measures chosen or adopted were or were not objectively justified. The existence of objective justification could not be determined against an employer, however strong the evidence in favour of the justification, because he did not have the justification contemporaneously in mind when the measure was chosen or adopted, whereas another employer on the same facts who did have the justification contemporaneously in mind would succeed.

[87]Furthermore, if the principle adopted by the Tribunal is correct, additional but not unimportant difficulties lie in the way of a Tribunal who have to apply it. Who, and at what level, has to be conscious of the relevant justifying features? And at what time? The development of a pay structure to the point which it has reached at the time of an Originating Application or a Tribunal decision is likely, in many cases, to have had a complex history; in the present case the structure which the Tribunal was considering had gone through a number of changes and developments. Length of service as a factor in pay went back to the beginning of HSE's existence. The way in which it affected pay, e.g. with or without an element of performance-related pay, changed during the history; but that factor was always present to a greater or lesser extent; in the case of employers with a longer history than HSE, what was in their mind many years ago when a particular factor in pay was first introduced might be difficult or impossible to demonstrate.

[88]Ms Gill did not seek to argue that the Tribunal, if they were directing themselves in paragraph 25 that as a matter of law the absence of contemporaneous justification must lead to the failure of HSE's justification defence, were right in law; and for the reasons we have set out we have no doubt that such a self-direction would have been in error of law.

[89]The principal thrust of Ms Gill's argument in this area was that the Tribunal did not stop at paragraph 25 but, by paragraph 26 and their subsequent findings of fact, demonstrated that they regarded the absence of contemporaneous justification as merely evidential, i.e. as a factual matter which they were entitled to take into account in deciding whether the employees had proved objective justification.

[90]Mr Underhill accepted that the fact that the justification put forward at the hearing was not in the minds of the employer when the relevant features of the pay structure were established or modified might be a factor to which a Tribunal could give weight in reaching a conclusion, if there ever was any dispute about it, as to what was the true cause of the disparity; but he submitted that in this case there was no doubt as to that cause.

[91]We would go further; we can see that the absence of evidence as to the justification later put forward having been in the mind of the employer when the relevant features of the pay system were established or modified might be evidential of the strength or lack of strength of the justification. To put it crudely, if the justification relied upon for length of service as a factor is the greater experience which length of service brings, it might – or might not –, depending on the length and nature of the history, be expected that one could see the importance of that experience reflected in the employer's contemporary documentation. However, in our judgment the Tribunal can be seen not to have limited their use of the absence of historical evidence as to justification to that of a piece of evidence. Paragraph 25 of their decision plainly sets out a principle.

[92]The first sentence at paragraph 26 of the decision is curiously expressed. The word "therefore" would appear to indicate that the Tribunal had reached the opposite conclusion in law in paragraph 25 to that which they actually expressed. We believe that that word is probably used by mistake; the natural and logical word in its place, in the light of the contents of the previous paragraph, would be "however". In any event, paragraph 25 is clear; and the fact that the absence of contemporary justification is used later in the judgment as an evidential factor does not, in our view, enable Ms Gill to circumnavigate the Tribunal's error of law on the basis that paragraph 25 has no other effect. What the Tribunal did, on our reading of their decision, was to conclude against HSE on the basis of the principle set out in paragraph 25 and, thereafter, also on the basis of their conclusions on the facts set out in paragraphs 27 to 34 which, they signalled in paragraph 26, they decided to embark upon as an alternative route to their final conclusion.

[93]It follows that, while we take the view for the reasons we have set out, that the Tribunal erred in law in paragraph 25 and therefore, if their decision in favour of Mrs Cadman was solely based on the principle there set out, the appeal would succeed, the Tribunal went on to consider the facts as if they had not relied upon that erroneous principle of law. Their error in paragraph 25 is, therefore, not fatal to Mrs Cadman's case; and we must now turn to the Tribunal's factual findings in respect of the comparisons between Mrs Cadman and the male comparators. Justification – the Factual Resolution

[94]In this section of our judgment we should first point out that, although the Tribunal considered the position as between Mrs Cadman and 'H' separately from that between Mrs Cadman and 'I', 'J' and 'K' the criticisms of the Tribunal's approach and conclusions made by Mr Underhill and the response to those criticisms centred largely around the former comparison with which the Tribunal dealt in much more detail than they did in the case of the latter comparison.

[95]The Tribunal identified the questions which they asked and answered in relation to the first comparison only. By implication they applied those questions to the second comparison; they adopted the same general approach – although of course the details are slightly different. It was not, as we understood it, substantially submitted by Mr Underhill or Ms Gill that the Tribunal's resolution in the case of any one of the two comparisons could stand if their resolution in the case of the other comparison fell. Accordingly we have concentrated our attention on the first comparison, set out at paragraphs 27 to 32 of the Tribunal's decision.

[96]Ms Gill fairly reminded us – and we shall endeavour not to forget – that factual analysis in a case such as this and the reaching of secondary findings of fact based on primary facts are often difficult and complex, but that, nevertheless, it was the task of the Tribunal to reach factual decisions, both of a primary and secondary nature, and that the Employment Appeal Tribunal should, in considering arguments as to such conclusions, be careful not to substitute its own view of the facts for that of the Tribunal, but to consider only, as Lord Donaldson MR put it in Piggott Brothers & Co Ltd v Jackson

[1991] IRLR 309

, whether the Tribunal's view was a "permissible option". Even if the reasoning for or logic of the Tribunal's conclusions was not as well expressed or as clear as one might prefer, she submitted, an appellate Tribunal must, nevertheless, only interfere if the Tribunal's decision revealed a plain error of law.

[97]We agree in general terms; but it is necessary also to bear in mind, as Sedley LJ said in Anya v University of Oxford

[2001] ICR 847

at paragraph 12, that adequate and intelligible reasons must be given for judicial decisions; and a finding of fact can only be a permissible option if the Tribunal have asked themselves the correct questions and if they have reached that finding without including irrelevant material or excluding relevant material.

[98]It is important, at the outset, therefore, to consider how the Tribunal ought to have approached the task of assessing whether HSE's defence of objective justification was made out on the facts. For this purpose we set out again – for it is a long time since we first set it out – what the European Court of Justice said in paragraph 36 of its judgment in Bilka-Kaufhaus : 36 "… If the national court finds that the measures chosen by Bilka correspond to a real need on the part of the undertaking, are appropriate with a view to achieving the objectives pursued and are necessary to that end, the fact that the measures affect a far greater number of women than men is not sufficient to show that they constitute an infringement of Article 119."

[99]In Barry v Midland Bank Plc Peter Gibson LJ in the Court of Appeal refined the impact of those words in these terms, at page 336A-B:

"In our judgment it would be wrong to extrapolate from those words written in that context that an employer can never justify indirect discrimination in a redundancy payment scheme unless the form of the scheme is shown to be necessary as the only possible scheme. One must first consider whether the objective of the scheme is legitimate. If so, then one goes on to consider whether the meanings used are appropriate to achieve that objective and are reasonably necessary for that end."

At page 336D Peter Gibson LJ adopted the words of Balcombe LJ in Hampson which had been approved by Lord Keith in Webb v Emo Air Cargo (UK) Ltd

[1993] ICR 175

, namely:

"In my judgment 'justifiable' requires an objective balance between the discriminatory effect of the condition and the reasonable needs of the party who applies the condition."

[100]In the House of Lords in Barry , Lord Slynn and Lord Hoffman did not deal with the objective justification issue; Lord Steyn would have decided against the employers on that issue had he not upheld the Court of Appeal's decision on the basis that there was no indirect discrimination; Lord Hope agreed with Lord Nicholls in upholding the Court of Appeal's decision in favour of the employers on the objective justification issue. At page 870F Lord Nicholls said:

"In other words, the ground relied upon as justification must be of sufficient importance for the national court to regard this as overriding the disparate impact of the difference in treatment, either in whole or in part. The more serious the disparate impact on women or men as the case may be, the more cogent must be the objective justification."

[101]We do not need to repeat the passages in the judgments of the Court of Appeal in Allonby which we have set out above at paragraphs 51 and 52 of this judgment, which emphasise the need to carry out a balancing exercise weighing the justification for the measures under scrutiny against their discriminatory effect and to consider whether those measures were reasonably necessary was reinforced.

[102]Taking these authorities together, it seems clear to us that the test which the Tribunal had to consider was whether, carrying out the balancing exercise which we have described, the use of length of service as a criterion in deciding upon pay was reasonably necessary. In considering that test no one factor was of special weight (per Lord Nicholls in Barry at page 870F, per Sedley LJ in Allonby at paragraph 30).

[103]Mr Underhill submitted that, although the Tribunal had been referred to the authorities we have just cited, they did not refer to the development in them of the Bilka-Kaufhaus case and did not appear to have considered or applied them. At paragraph 23 of their decision the Tribunal said: 23 "The test to be applied is as set out in paragraph 36 of the decision in Bilka ." and at the beginning of paragraph 29 they said: 29 "Applying the test in Bilka were these measures chosen by the Respondents, did they correspond to a real need on the part of the employer, and if so were they both appropriate and necessary?"

[104]Mr Underhill submitted that by focusing only on the Bilka-Kaufhaus exposition of the test and failing to consider the subsequent decisions, the Tribunal led themselves into error, in particular in asking themselves whether the measures under scrutiny were necessary, as opposed to reasonably necessary, and in failing to carry out the essential balancing exercise described by the later authorities.

[105]Ms Gill submitted that the Tribunal were right to base their decision on Bilka-Kaufhaus and that it could and should not be inferred from the absence of any reference to Barry , Allonby or any of the other cases post- Bilka-Kaufhaus that the Tribunal had not applied the correct test, that of "real need". Real need, she submitted, could be seen to have been the primary focus of the Tribunal's examination of the facts. While the cases established that the test was one of reasonable, not absolute necessity, by considering real need the Tribunal had considered reasonable necessity; and the balancing exercise only arose if a real need was established. In any event, she argued, the result of a balancing exercise if carried out would have been entirely plain and the Tribunal in the circumstances did not need to carry out such an exercise as they would have done had the facts been less compelling in favour of the employee.

[106]In our judgment, the issue of justification is not to be decided by first considering whether a real need has been established and then carrying out the balancing exercise described in Allonby or Barry ; a reading of paragraphs 27-29 of Allonby together indicates, as do the passages in Barry to which we have referred, that to ascertain whether there was objective justification the Tribunal must objectively balance the discriminatory affect of the factor under scrutiny against the reasonable needs of the employer.

[107]It is true that the Tribunal did, at paragraph 29, refer to real need; but they went on in posing the questions which they sought to answer in paragraphs 29, 31 and 32 to refer to "necessary" rather than "reasonably necessary" and there is nothing to show that they had "reasonably necessary" in mind.

[108]Further – and indeed Ms Gill did not suggest to the contrary – it appears to us that there is in their decision, read as a whole, little or nothing which shows that they carried out a balancing exercise by weighing the discriminatory effect of the pay structure, which included the factor of length of service, against the justification put forward. Seeking to identify real need without carrying out the necessary balancing exercise may lead to a failure to appreciate that the real question is whether in all the circumstances, balancing the discriminatory effect against the justification put forward the Tribunal regards the pay practice under scrutiny as reasonably necessary and objectively justifiable. That the Tribunal had to determine the answer to that question in the light of that balancing exercise does not appear in the Tribunal's self direction as to law in paragraph 23 of their decision, or in their expression of the essential questions which had to be answered in paragraphs 29 to 31, or elsewhere.

[109]The absence of a balancing exercise was fatal to the successful employer's case in Allonby and in our judgment it is – or would be had we reached a different conclusion on the Danfoss issue – fatal to the successful employee's case here.

[110]It is simply not possible for us, despite Ms Gill's invitation to us to do so, to conclude that a balancing exercise was unnecessary because it could only have produced one answer. We have seen notes of some of the evidence and some of the documents; but we do not have before us all of the evidence which was before the Tribunal. Even if we did, it would be wrong for us to accept Ms Gill's argument. It must not be forgotten that in Danfoss the European Court of Justice expressed the view that length of service was automatically justifiable. Even on the hypothesis that that is no longer good law, there is a legitimate view, which was backed by evidence from HSE in this case, that length of service connotes valuable experience which is important in general terms to an employer and was important to HSE. We could no more conclude that the balancing exercise was unnecessary in this case because it could only produce one answer than we could conclude, on the basis that the Tribunal had erred in not carrying out the balancing exercise and in not directing itself as to "reasonably necessary" that a remission was unnecessary. We could not be sufficiently sure as to what resolution of the factual issues would have emerged had the Tribunal adopted the correct approach as to enable us to avoid such a remission. Accordingly, for those reasons, we would allow HSE's appeal and (absent the Danfoss point) remit Mrs Cadman's claim to the Employment Tribunal.

[111]However, because a number of other points were fully argued before us and may be of importance hereafter, we feel that we should express our views at least as to those which were most prominent.

[112]Mr Underhill was critical of the use by the Tribunal of the "absence of contemporaneous justification" point, not only insofar as it appears in paragraph 25 as a self direction of law and, seemingly, a knock-out blow to HSE's defence, but also insofar as it appears in the Tribunal's analysis of the existence of objective justification on the facts. He drew our attention to the frequency of reference to the point in paragraphs 28 to 31 of the decision to; it is made in the third sentence in paragraph 28, in the third sentence in paragraph 29, throughout paragraph 30 and again in the last sentence of paragraph 31. Mr Underhill's argument was that the Tribunal had, in effect, built into this section of their decision the erroneous view which had been set out earlier in paragraph 25 and had regarded it as factually destructive of HSE's case.

[113]While we are concerned by the emphasis placed by the Tribunal upon the absence of contemporaneous justification point in their factual analysis, we must remind ourselves, as we earlier promised that we would, of the need not to substitute our views as to the facts for that of the Tribunal if the Tribunal's view was a permissible option. If paragraphs 28 to 31 are read as a whole, as of course they should be, it can be seen that, although the Tribunal took a strong and forthright view about the absence of contemporaneous justification, they were deciding in those paragraphs not that because of that absence HSE's defence must fail but that that absence was an evidential matter of substantial weight in their assessment of the facts as a whole, including that absence, as to whether a real need for the existence of the factor of length of service in the pay system had or had not been made out. Whatever our own views, we are not satisfied that the Tribunal's view of the impact of that absence was not one which was permissible for the Tribunal to hold.

[114]There are two further areas of criticism put forward by Mr Underhill which it is necessary to examine. The first is that the Tribunal wrongly concluded, without examining the full facts and considering objective justification, that the pre-1995 pay structure was discriminatory and unjustified in its reliance on length of service and concentrated their attention on whether the retention of the effects of that pre-existing discriminatory system and the failure to eliminate the past effects of that system was justifiable. In so doing, it was submitted, the Tribunal had failed to appreciate HSE's real case that the presence of length of service as a factor in the pay structure was justified throughout the relevant history and indeed that, albeit in a different form, length of service continued to be used up to the present as a factor in the pay structure, not only in the sense that those who had benefited from it prior to 1995 (or 1992) retained the increases in pay which they had received under the old system – so that the discriminatory effects of the old system were not removed and would not be until all pre-1995 Band 2 Inspectors had reached the Band maximum – but also in the sense that the award of annual increments over and above inflation in each year, although calculated in differing amounts dependent on performance, was of itself a continuing recognition of length of service and awarded the continuing accumulation of experience which length of service brought. Thus the justification put forward was not simply historical but related to the whole of the period of Mrs Cadman's employment.

[115]The Tribunal commenced their analysis of the justification put forward by HSE, in the first sentence of paragraph 28, by describing the reasons given for the differential created by the use of the factor of length of service as historical in that they reflected the previous incremental and probably discriminatory system. In the seventh sentence of paragraph 29 they said that: 29 "An incremental system that reflected the general accumulation of experience inside and outside the organisation did not exist in the new pay structure. What the Respondents had done was, when confronted with pay inequalities looked for something to justify it and identified the only historical factor that existed in the new pay structure and that was the historical aspect of the incremental pay system linked to service." Similar points were made in paragraph 31 and in paragraph 33:

"…there was no evidence to show that either from the point of view of turnover and retention of staff or the need to compensate long-serving employees was there any justification for the continuation of a historical pay system the impacted disadvantageously on women…"

[116]We do not interpret the Tribunal's decision as embodying a conclusion that the pre-1995 system was unjustifiable as opposed to the conclusion, which was plainly correct, that it had a prima facie discriminatory effect subject to justification; but it does seem to be clear that the Tribunal concentrated on what they saw as the perpetuation of a historical system and of the legacy of the system which existed before performance-related increments were introduced without considering the history as a whole and without considering that, although the details of the system had changed, the addition of an increment in each year which was consolidated into basic pay and was, therefore, not simply a bonus calculated on performance, amounted not only to a perpetuation of or legacy of the old system but to a continuing incorporation in the pay system of length of service. Even if length of service had ceased to be a factor in pay progression from 1992 or 1995, it does not follow – although the references to the historical nature of the justification appear to reveal that the Tribunal thought that it did follow – that the continuation of the effects of the earlier system could not be justified.

[117]What were HSE to do? It would arguably not have been possible in practical terms for HSE either to reduce the earnings of those who had benefited from increments under the old system or to increase the earnings of those who had not so benefited to the level of those who had had. To what level. There must have been many different levels according to the point scale. The Tribunal did not consider these factors.

[118]The Tribunal also did not consider that the justification put forward was not only not purely historical in the sense that there were arguably reasons why the differentials could not be removed but was also not purely historical in the sense that the new system post-1992 and 1995 also rewarded length of service. There is no reason why (in the absence of a contractual or statutory obligation) an employer should provide an annual increment to employees over and above an increment for inflation (or indeed that an inflation increment should be provided). If employers agree with trade unions as part of a collective bargain that they will pay an annual increment based on performance, they are agreeing to a pay system which does reward service; the amount of the reward is dependent on performance; but it is the accumulation of another year's service which (unless in the case of an individual his or her service is so abject as to disqualify him or her from such an award) generates the right to the increment. This too the Tribunal appear to have omitted to consider.

[119]It was submitted on behalf of Mrs Cadman that Mr Underhill's acceptance that his argument as to the practical difficulties of eliminating the effect of the earlier pay system was analogous to a "red circling" argument and that HSE's case had never been put that way before. It was apparent, it was submitted, that HSE operated a discriminatory system before the change to performance-related increments which it was their continuing duty not to retain in any form unless justification was established – which the Tribunal rejected. That justification, Ms Gill submitted, was that based on the connection between length of service and experience and not the difficulty of making changes so as wholly to eliminate the discriminatory effect of the previous system.

[120]In response Mr Underhill submitted that Ms Gill was seeking to put her case not on the basis that length of service as a determinant of pay was unjustifiable but that it was inconsistently applied – which he in turn described as a new argument not advanced below.

[121]Although we have seen the Skeleton Arguments provided to the Tribunal by the parties' advocates, and the Chairman's notes of the evidence of Mr Scott and Mrs Cadman, we have not found it possible to resolve the arguments as to whether either side was, before us, advancing his or her case in a manner in which it was not put below. It must be borne in mind that these were arguments about how the Tribunal should approach and find the facts rather than propositions of law; and it would not be surprising in a complex and difficult case if either or both parties now saw the facts in a somewhat different light at the appellate stage or wished us to do so. In any event we did not understand that these arguments were put to us in such a way as to seek to persuade us to pay no heed to the other party's argument at which this line of attack was directed, as opposed to a (wholly proper) form of advocacy designed to weaken those arguments. In the result we have not been swayed by them; but we have reached the conclusion that, in approaching HSE's defence of justification on the basis that the reasons given for the differential were historical only – as we believe the Tribunal did – the Tribunal failed to appreciate and consider the continuing effect of length of service as a factor in levels of pay on a year-by-year basis in the case of every Band 2 Inspector (whatever his or her pre-1992 or pre-1995 experience) and failed to consider the difficulties of eliminating the pre-1995 differentials at a stroke or more quickly. In so doing the Tribunal omitted to consider particularly important matters; and in our judgment these omissions further vitiate the Tribunal's conclusions as to HSE's defence of objective justification.

[122]We do not believe that it would be at all helpful to the parties or to any other court or Tribunal who becomes interested in this case to lengthen further this already long judgment. There were other arguments on both sides with which we have not expressly dealt; in particular there was argument as to whether the Tribunal had erred in considering not whether there was justification generally but by looking at the facts of the individual circumstances of 'H', 'I', 'J' and 'K' as compared with those of Mrs Cadman.

[123]We regard it as clear that the Tribunal's task was to consider the general and collective nature of the pay systems and their effects and their justification; but it would not be of assistance to cover many further pages in considering whether the Tribunal had or had not considered the issues in that way in the light of the conclusions we have reached upon the other arguments. Conclusion

[124]For the reasons we have set out, the appeal must be allowed. If we were to have concluded that HSE succeeded only for the reasons set out in paragraphs 81 to 121 of this judgment we would have remitted Mrs Cadman's claim for rehearing by a differently-constituted Tribunal; but for the reasons set out in paragraphs 47 to 80 of this judgment we have concluded that, as a matter of law, Mrs Cadman's claim should not have succeeded at all.

[125]Accordingly, the appeal is allowed; and for the decision of the Tribunal that Mrs Cadman was entitled to the declaration which we have earlier described, we substitute and order that Mrs Cadman's claim is dismissed.