Until recently, the issue of whether or not an employer has to justify using length of service as a criterion in a pay system has been in dispute.
However, following the European Court of Justice decision in Cadman v Health & Safety Executive, an employer will have to justify such a system only if a worker provides evidence that raises serious doubts as to the appropriateness of rewarding experience based on length of service.
Cadman brought a claim against the Health and Safety Executive, arguing that the government body, which paid her less than male counterparts in the same pay bracket because of differences in their lengths of service, was being indirectly discriminatory. She argued that the policy had a disproportionate adverse impact on women because their length of service tended to be shorter for reasons connected with childcare responsibilities.
The ECJ has ruled that employers do not need to provide specific justification for using length of service as a criterion in a pay system, even when that results in unequal pay between men and women. Justification will be required only if a worker can provide evidence that raises serious doubts as to the appropriateness of rewarding experience in this way.
Although the decision in Cadman seems clear enough, employers must still take the age discrimination regulations into account. The regulations provide that any length-of-service requirement of five years or less will be exempted and will be able to continue. When an employee's length of service exceeds five years, an employer will have to show that it "reasonably appears" that the criterion of length of service "fulfils a business need" such as encouraging the loyalty or motivation or rewarding the experience of workers.
However, although an employer may be able to prove that pay awards based on length of service encourage loyalty or motivation, it has yet to be seen whether this will be justification for the purposes of an equal pay claim if the tribunal is not satisfied that greater experience improves performance in a particular job.