Joint Committee on Statutory Instruments Thirtieth Report


Appendix 2

S.I. 2003/1656: memorandum from the Department of Trade and Industry

Equal Pay Act 1970 (Amendment) Regulations 2003 (S.I. 2003/1656)

Purpose of this Memorandum

18. The Department has today laid before Parliament the Equal Pay Act 1970 (Amendment) Regulations 2003, which make various amendments to procedural rules contained in the Equal Pay Act. The Department has prepared this voluntary memorandum in order to explain the background to these amendments, in the hope that this may be of assistance to the Joint Committee when considering the Regulations.

Background: Equal Pay Act 1970

19. The Equal Pay Act ('the Act') was designed to prevent discrimination between men and women as regards terms and conditions of employment. It does this by implying into every contract of employment an 'equality clause'. The equality clause operates so that, where a man and a woman are doing equal work[6], and the man's contract contains a term which is more favourable that the equivalent term in the woman's contract, the term in the woman's contract is modified so that it is equally favourable. The equality clause does not operate where the employer can show that the variation is genuinely due to a material factor which is not the difference of sex. The Act is drafted in terms of women and their contracts relative to men's, but applies equally in the converse case of a man whose contract is less favourable than a woman's.

20. Where the equality clause has been contravened, section 2 of the Act sets out the ways that disputes can be resolved. This is primarily by way of a complaint by the woman, but it is also possible for an employer to make an application to the tribunal for a declaration as to the effect of the equality clause in a particular case, or for the Secretary of State to refer questions to the tribunal on behalf of women who could not reasonable by expected to do so themselves. The types of proceedings set out in section 2 of the Act are not exhaustive, and it is possible that a breach of the equality clause could be raised in any proceedings relating to the contract of employment.

21. Sections 2(4) and 2(5) contain procedural rules, and these are the rules which are amended by these Regulations. Section 2(4) provides that a woman may not present a complaint to the employment tribunal later than six months after the end of the employment in question. This time limit operates by reference to the end of the employment, rather than by reference to the time when the equality clause was contravened. Section 2(5) provides that any payment by way of arrears of remuneration or damages for breach of the Act is limited to the period of two years before the date on which the proceedings were instituted. While section 2(4) is only relevant to complaints before an employment tribunal, section 2(5) applies to any proceedings about a contravention of the equality clause, whether before an employment tribunal or a court.

22. Section 7A of the Act contains specific provisions modifying the general rules insofar as they apply to service by a woman in any of the armed forces. Section 7A(8) provides an equivalent rule to section 2(4), while section 7A(9) provides an equivalent to section 2(5).

Need for change: decisions of the European Court of Justice

23. The Act gives effect to Article 141 of the Treaty of Rome, which sets out the principle of equal pay for male and female workers for equal work or work of equal value, as expanded upon in the Equal Pay Directive (Directive 75/117/EEC).

24. In relation to procedural provisions, such as time limits for bringing claims, the position under well-established Community caselaw is that it is for national law to lay down the procedural rules governing those claims, provided that the national rules do not:

(1) make it impossible in practice or excessively difficult to enforce those rights ('the principle of effectiveness'); or

(2) treat rights derived from Community law less favourably than they treat similar domestic law rights ('the principle of equivalence').

25. The ECJ has considered the procedural rules in sections 2(4) and 2(5) of the Act in two cases. In the first case (Levez)[7], it held that a limit on recoverability of arrears of pay is permissible in principle, but the two year limit in section 2(5) breached the principle of effectiveness because it was not capable of extension in cases where recovery was impracticable, e.g. where the employer had deliberately concealed relevant facts from the woman. The ECJ left the principle of equivalence to the national court, which subsequently held that section 2(5) also breached this principle. It decided that there were a number of domestic causes of action[8] which could be similar for this purpose and in each case it was possible to recover damages for a longer period than two years.

26. The second case before the ECJ (Preston)[9] concerned pensions rather than pay. The ruling on the two year period for recoverability of arrears is not relevant to these Regulations because of the different nature of the remedy in pensions cases. However, the ECJ also considered the six month time limit for bringing proceedings - section 2(4). It held that the limit was compatible with the principle of effectiveness, except in one respect. The time limit required that a woman who was employed in a stable employment relationship made up of a series of individual contracts of employment (e.g. a teacher engaged on a termly basis) had to institute separate proceedings within six months of the end of each contract. The ECJ held that this breached the principle of effectiveness and the rules should instead allow one set of proceedings to be brought in respect of the whole stable employment relationship. The ECJ again left for the national court the question of whether section 2(4) was compatible with the principle of equivalence, and the House of Lords later concluded that there was no breach of that principle.

Principle of equivalence

27. In deciding how to amend section 2(4) and (5) the Department had to take a view on which domestic cause of action was the closest comparator to a complaint under the Act. The domestic courts had identified a number of domestic causes of action which might be considered to be similar for the purposes of the principle of equivalence. The ECJ has indicated that one should look at the purpose and essential characteristics of the allegedly similar domestic law claim to determine if it is similar to a claim for equal pay.

28. On balance, the Department considers that the most appropriate 'comparator action' is a claim for breach of contract. In both cases, the claim is intended to ensure that the employee receives the amount of money that she should receive for the work done under the contract of employment. In either a contract or an equal pay claim, the purpose of the action would be to secure arrears of salary or compensation. Moreover, equal pay claims operate by way of an equality clause inserted into a contract of employment.

29. The procedural rules which apply in a breach of contract claim are set out in the Limitation Act 1980 for claims in England and Wales and the Prescription and Limitation (Scotland) Act 1973 for claims in Scotland. The Department has therefore sought to ensure that the procedural rules in the Act are no less favourable than those which apply under those Acts.

30. In summary, the Limitation Act requires claims to be brought within six years of the breach of contract. However, this time does not start to run if the claimant was under a disability at the time of the breach, or if the defendant deliberately concealed relevant facts from the claimant (and the claimant could not with reasonable diligence have discovered it).

31. The Scots law on prescription operates differently, in that the obligation or debt is extinguished entirely at the end of the prescription period. The prescription period is five years in a claim for breach of contract, but the five years is not regarded as running during any period when the claimant was under a legal disability, or when the claimant was induced to refrain from making the claim because of some fraud or error caused by the defendant. This is not the same as the effect of the Limitation Act. Under the Limitation Act, the six year time limit starts to run again from the beginning once the person ceases to be under a disability or discovers the concealed fact. Under the Prescription and Limitation (Scotland) Act, the five year time limit is simply extended by the period of disability or fraud/error. The prescription period can never exceed twenty years.

Amendments to the Act

32. The Department has therefore aimed to amend the rules in section 2(4) and 2(5) so that they comply with these rulings and operate in a way which is no less favourable than the rules which would apply to a claim for breach of contract.

33. In the case of section 2(4), the Preston ruling required section 2(4) to be amended to provide for a single complaint to be possible in a stable employment relationship case. The Department also concluded that this time limit should be extended in cases of concealment or disability, by analogy with the Levez ruling (effectiveness) and because such extensions are made for breach of contract (equivalence).

34. These Regulations therefore amend section 2(4) so that complaints must be presented within six months of the end of the employment in the standard case. However, where there has been a stable employment relationship even after the end of an individual contract of employment (such as where a teacher is employed on successive contracts for each school term with mutual expectation that there will be a new contract each term), it is possible to make one complaint in respect of the whole relationship. In addition, the six months can be extended where the employer has deliberately concealed relevant facts from the woman, and the woman could not reasonably have been expected to commence the proceedings without knowing that fact, or where the woman was under a disability. In a case where the woman has been under a disability and had facts concealed from her, the six months runs from the time when she has both ceased to be under the disability and discovered the relevant fact.

35. In the case of section 2(5), it was necessary to make separate provision for each of Scotland and England & Wales, because of the differences between the prescription regime in Scotland and the limitation periods in England & Wales. Even had it been considered desirable, it would not have been possible to apply a six year limitation period to proceedings in Scotland because, under Scots law, an obligation is extinguished once the prescription period has ended.

36. In proceedings in England and Wales, the amendments mean that arrears can be awarded for up to six years before the date of the proceedings in a standard case. This is the equivalent of what would happen in a claim for breach of contract, where the claim could be brought up to six years after the breach, and damages recovered in respect of that breach. As explained above, where a woman has been under a disability or had relevant facts concealed from her, the limitation period does not start to run until she has recovered from the disability or discovered the relevant facts. She can therefore bring proceedings up to six years after that date and recover damages in respect of the original breach. The amendments made in these Regulations have an equivalent effect. If the woman has brought her claim within six years of ceasing to be under a disability or discovering the relevant contravention, she is entitled to recover arrears dating back to the relevant contravention.

37. In proceedings in Scotland, the amendments mean that arrears can be awarded for up to a period of five years before the date of the proceedings in a standard case. Again, this is the equivalent of the way that the prescription period works in a claim for breach of contract. The five year period is extended in respect of any time when the woman was under a disability or induced, by fraud or error caused by the employer, to refrain from commencing the proceedings. However, this is subject to a maximum of twenty years, as under the Prescription and Limitation (Scotland) Act.

38. Equivalent changes are made to the provisions which relate to the armed forces - section 7A(8) and (9) of the Act. However, there are some differences. First, there is no provision for stable employment relationships, since such relationships would not arise in the context of the armed forces. Second, the standard time limit for bringing a complaint (as under the current rules) is nine rather than six months. The time limit is different in armed forces claims, partly because members of the armed forces are obliged to use a service redress procedure in the majority of cases before presenting their complaints to the employment tribunals. Finally, the period in respect of which arrears can be awarded runs from the date of the complaint under the service redress procedure (as under the current rules) rather than from the date when the complaint is presented to the employment tribunal. There are some circumstances when members of the armed forces are not obliged to use the service redress procedure first. In those circumstances the period runs from the date when the complaint is presented to the employment tribunal, as in non-armed forces cases.

Cases to which the Regulations apply

39. Regulation 2 makes provision as to how the new rules apply to existing facts and proceedings. The amended sections 2(4) and 7A(8) will apply to all proceedings instituted on or after the day on which Regulations come into force. However, they are not intended to 'resurrect' any proceedings which had already become time-barred under the old rules on the date that the Regulations come into force. This means that the new rules will not allow proceedings to be brought where the contract of employment ended more than six months previously. In stable employment relationship cases, the tribunal will only be able to make a determination under the new rules in relation to those contracts within the stable employment relationship which ended six months or less before the Regulations come into force.

40. The amended sections 2(5) and 7A(9) will only apply to proceedings which are instituted on or after the date on which the Regulations come into force, and not in relation to pending proceedings.

41. It is likely that employment tribunals are already applying similar rules to those set out in these Regulations where this is necessary to comply with the above judgments and the direct effect of Article 141 EC. Nothing is intended to prevent the employment tribunals from continuing to apply such rules as a matter of the direct effect of Community law in the case of proceedings instituted before the Regulations come into force.

27th June 2003

S.I. 2003/1656: further memorandum from the Department of Trade and Industry

1. The Committee has requested a memorandum on the following points:

Regulation 2(2) provides that regulations 3(2) and 4 do not apply in respect of a complaint to an employment tribunal made after the commencement date if the last day on which the woman was employed in the employment falls more than six months before the commencement date. What rules determine whether a tribunal may entertain a complaint in such a case? In cases where there is concealment or the complainant is under a disability how does regulation 2(2) satisfy the Community requirements of effectiveness and equivalence? Similar questions arise on regulation 2(7).

Regulation 2(3) and (4) provides that where regulations 3(2) and 4 enable a tribunal to make a determination in a stable employment case the determination may not relate to a contract of employment which ended more than six months before the commencement date. How does regulation 2(3) and (4) satisfy the Community requirement of equivalence?

2. In a case where regulation 2(2) applies, what rules determine whether a tribunal may entertain a complaint in such a case?

3. As the Committee notes, regulation 2(2) provides that regulations 3(2) and 4 do not apply in a case where the proposed proceedings concern employment which ended more than six months before the commencement date. Regulation 3(2) substitutes a new subsection (4) into section 2 of the Equal Pay Act 1970 as amended ("the Act"). Regulation 4 inserts a new section 2ZA into the Act.

4. Before the amendments made by these Regulations, the effect of section 2(4) of the Act is that a claim may not to be referred to an employment tribunal if the woman has not been employed in the employment in question within the six months preceding the date of the reference. Accordingly, in any case where the last day on which the woman was employed in the employment falls more than six months before 19th July, the commencement date of these Regulations, the complaint would already have become time-barred under section 2(4).

5. The effect of regulation 2(2) is that regulations 3(2) and 4 do not apply in such a case. Because regulation 3(2) does not apply, the substitution of a new section 2(4) does not occur in respect of such a case, and accordingly the pre-existing section 2(4) continues to apply. The effect is that the complaint continues to be time-barred, as it was before the Regulations came into force.

6. Regulation 2(2) reflects the Department's view that it would have been inappropriate for the Regulations to modify a procedural time-bar in relation to situations where the expiry of the six-month period had already crystallised the bar. The Department was also concerned that it might have been incompatible with section 2(2) of the European Communities Act 1972 to make a provision which had the effect of allowing complaints to heard by tribunals which had already been time-barred in national law, because of the restriction in paragraph 1(1)(b) of Schedule 2. However, its decision on policy grounds made it unnecessary to reach a final view on that issue.

7. In cases where there is concealment or the complainant is under a disability how does regulation 2(2) satisfy the Community requirements of effectiveness and equivalence?

8. As the Department explained in its memorandum of 27th June, no court has yet held that the rules in the previous section 2(4) breach the requirements of equivalence or effectiveness in a case where the complainant was unable to commence the proceedings within six months of the end of employment because of concealment or disability. However, the Department considered that the six-month time limit probably would be found to breach the requirement of effectiveness if such a case were brought. The Department therefore concluded that the rules should be amended, and used the extensions permitted in a breach of contract claim as a guide to the circumstances in which it would be appropriate for the six-month time limit to be extended (reflecting the requirement of equivalence). Regulations 3(2) and 4 were the result.

9. In the Department's view, a clear distinction needs to be drawn between the legal effects of pre-existing section 2(4) and those of regulation 2(2). Regulation 2(2) means that the new rules which provide for extension of the six-month period in cases of concealment or disability do not apply in cases where the employment ended more than six months before the commencement date. The pre-existing version of section 2(4) therefore applies as a matter of national law. In such cases the effect of that subsection had already become crystallised before the Regulations came into force and regulation 2(2) does not alter that legal position. It operates as a transitional provision that prevents regulations 3(2) and 4 from making an inappropriate modification to past legal situations in which the effect of national law has crystallised. Any issues of effectiveness and equivalence predate regulation 2(2) and there is nothing in such a transitional provision that gives rise to any fresh cause of non-compliance with those requirements. In the Department's view, for these reasons regulation 2(2) satisfies the requirements of equivalence and effectiveness.

10. It would remain open to the complainant in such cases to ask the tribunal to accept her complaint on the ground that, by making no provision for extension in cases of concealment or disability, the pre-existing section 2(4) is incompatible with the Community requirements of effectiveness or equivalence. If the tribunal concluded that the subsection was incompatible, it would be obliged to find an interpretation of that subsection which was consistent with Community law or to disapply it as a matter of the direct effect of Article 141 EC. Such potential complaints are in the same legal position for periods after the Regulations come into force as they were before then.

11. Related issues concerning regulation 2(7)

12. The same analysis on each issue applies in the case of regulation 2(7). In a case where the woman's period of service ended more than nine months before the commencement date, regulation 6(3) does not apply. This means that the new section 7A(8) is not substituted, and so the previous section 7A(8) continues to apply. If the case involved issues of concealment or disability, the new rules would not apply but the tribunal would be able to entertain the complaint if that was required as a matter of the direct effect of Article 141 EC.

13. For the same reasons as given above the Department views regulation 2(7) as satisfying the requirements of effectiveness and equivalence.

14. In a stable employment case, how does regulation 2(3) and (4) satisfy the Community requirement of equivalence?

15. As the Committee notes, regulation 2(3) and (4) provides that, where regulations 3(2) and 4 enable a tribunal to make a determination in a stable employment case, the determination may not relate to a contract of employment which ended more than six months before the commencement date. This reflects the fact that the new provisions on stable employment cases operate differently from the pre-existing section 2(4) of the Act.

16. Under the pre-existing section 2(4), a woman who has a stable employment relationship made up of a series of individual contracts of employment, if she wishes to bring a complaint about the terms of one of those individual contracts of employment, must institute proceedings within six months of the end of that contract. If she delays longer than six months after the end of a particular contract, her complaint is barred by section 2(4).

17. The House of Lords considered the six-month rule in the previous section 2(4) in the case of Preston, and held by a majority that the equivalent domestic law cause of action is an action for breach of contract. However, their Lordships held that the previous section 2(4) was no less favourable than the six year rule which applies in England and Wales under the Limitation Act, because complaints in equal pay cases can be brought in the employment tribunals rather than the civil courts, and the six months runs from the end of the employment rather than from the date of the breach. The six-month rule is therefore not in breach of the requirement of equivalence simply because it is shorter than the period of six years which applies in breach of contract claims in England and Wales.

18. However, the House of Lords considered complaints about stable employment relationships separately, and concluded that section 2(4) was in breach of the requirement of effectiveness insofar as it prevented a complainant from bringing one complaint in respect of the entire period of the relationship.

19. Accordingly, one effect of regulations 3(2) and 4 is to insert into the Act provisions enabling a complaint to be made to the tribunal, in respect of any contract term during the existence of a stable employment relationship at any time up to the date falling six months after the end of the relationship.

20. This could have enabled complaints to be made about terms of individual contracts of employment in respect of which the time-bar under pre-existing section 2(4) had already crystallised at the time when the regulations came into force. The Department regarded that as being inappropriate for the same reasons as are mentioned above, and regulation 2(3) and (4) accordingly disapply the new provisions in those circumstances.

21. The legal situation immediately before the Regulations came into force was that a person in a stable employment relationship wishing to complain about a provision in a contract that had expired more than six months previously was subject to a crystallised time-bar under section 2(4). That person could nevertheless present a complaint to the employment tribunal in reliance on the direct effect of Article 141 EC and the guidance of the House of Lords in Preston. That position remains unchanged after the Regulations come into force and in such cases a complaint may still be made in reliance on the direct effect of Community law.

22. The Committee's question concerns the requirement of equivalence. The Department understands that requirement to be that national procedural rules must not treat rights derived from Community law less favourably than they treat similar domestic law rights. As explained, the reason for introducing the new provisions on stable employment relationships was the ruling in Preston that the pre-existing section 2(4) breached the requirement of effectiveness. The House of Lords has held that the pre-existing section 2(4) did not breach the requirement of equivalence, and nothing in these regulations affects this conclusion with regard to the six-month rule as such. In contrast to the provisions covering cases of concealment and disability considered above, the Department is not aware of any limitation provision on breach of contract in national law (the appropriate comparison under Preston) relating to extension in cases of a stable employment relationship. The Department therefore views the requirement of equivalence as either being inapplicable or as being satisfied in the case of regulation 2(3) and (4).

21st July 2003

S.I. 2003/1656: further memorandum from the Department of Trade and Industry

1. The Committee has requested a further memorandum on the following point:

The Department, in its memorandum of 21 July 2003, states that the legal situation immediately before the Regulations came into force was that a person in a stable employment relationship wishing to complain about a provision in a contract that expired more than six months previously was subject to a crystallised time-bar under section 2(4) of the 1970 Act. Explain how this statement and regulation 2(2) to (4) are consistent with the decision of the House of Lords in Preston that the six-month limitation period runs from the end of the last contract forming part of the stable employment relationship.

2. The House of Lords in Preston considered the interpretation of section 2(4) and its application to stable employment relationships on two occasions. On the first occasion ([1988] 1 WLR 280) their Lordships considered the statutory interpretation as a matter of pure domestic law. They agreed with the Employment Appeal Tribunal and the Court of Appeal that section 2(4) was dealing with specific contracts so that as a matter of interpretation a claim could only be brought in respect of employment in existence within the six months preceding the reference of the claim to the industrial tribunal. The House of Lords then referred to the European Court of Justice the question of whether such interpretation meant that section 2(4) was incompatible with what is now Article 141 of the EC Treaty.

3. Following the European Court of Justice's judgment, the House of Lords considered the issue for the second time ([2001] 2 WLR 448). Their Lordships concluded that Article 141 EC meant that it should be possible to bring one claim in respect of the whole stable employment relationship, provided that the claim is brought within six months of the end of the last contract forming part of that relationship.

4. Accordingly, section 2(4) was incompatible with Community law to the extent that it prevented such claims from being brought. The House of Lords declared (at paragraph 35(b) of the judgment) that section 2(4) cannot be relied upon so as to require a claim to be brought within six months of the end of each contract of employment where there has been a stable employment relationship.

5. The Department understands this to mean that the proper interpretation of section 2(4) as it appears on the face of the Equal Pay Act continued to be that it operated to bar complaints which were presented more than six months after the specific contract in question. However, this was incompatible with the directly effective requirements of Article 141 EC, and so could not be relied upon by respondents in the circumstances set out in the judgment.

6. The regulations amend the Equal Pay Act to remedy the incompatibility between the domestic law set out in that Act and the requirements of Article 141 EC. In the case of section 2(4), a new subsection is substituted which refers in turn to new section 2ZA. In determining the point from when these new provisions should have effect, the Department considered it appropriate to exclude cases where the time bar had crystallised under domestic law as represented by the previous version of section 2(4).

7. As mentioned in the memorandum dated 27 June 2003, and paragraph 17 of the memorandum dated 21 July 2003, the Department anticipates that tribunals would accept stable employment relationship claims which would otherwise have been time-barred under section 2(4) because of the obligation to give effect to Article 141 EC.

24 October 2003


6   Equal work means like work, work rated as equivalent or work of equal value. Back

7   Case C-326/96 Levez v T.H. Jennings (Harlow Pools) Ltd [1998] ECR I-7835. Back

8   The EAT in Levez considered claims for breach of contract, unlawful deduction from wages, and breaches of the Race Relations Act/Disability Discrimination Act. Back

9   Case C-78/98 Preston [2000] ECR I-3201. Back


 
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