Comment

This is an important decision limiting the ambit of discrimination claims by contract workers i.e. individuals who are employed by one company and supplied by that company to work for another, such as in an outsourcing context. The decision of the EAT had left open the scope for discrimination claims from employees of the service provider where the terms negotiated by the end user client could be said to effectively determine the terms of employment of the individuals working on their contract. The decision of the Court of Appeal closes off this option.

Service provider employees will still have the full set of employment rights against their own employer . They can also claim against the end user client if the client discriminates against them in relation to matters it directly controls, such as by excluding them from the contract or from facilities such as canteen facilities, or imposes discriminatory requirements such as in relation to dress code requirements. However, there might not be any discrimination in the way the service provider operates its own pay policies. The decision limits the scope for a claim based on a difference between what the outsourcer pays to its own staff versus the contract price it is prepared to agree for outsourced arrangements.

This decision applies in principle to agency worker situations too. However, agency workers have specific rights to comparable pay under the Agency Workers Regulations 2010 in some circumstances.

In more detail

This case centered on a claim about lower pay for outsourced workers in comparison to directly employed workers. It raised issues about the scope of the Equality Act 2010 (EqA) protections for outsourced workers, as well as issues about how indirect discrimination claims are framed.

Legal background

Section 41 of the EqA governs situations where a principal makes work available for an individual who is (a) employed by another person and (b) supplied by that other person in furtherance of a contract to which the principal is party. It therefore covers outsourcing and agency worker situations.

The section prohibits discrimination, harassment and victimisation by the principal (i.e. the end-user client) in any of the following:

• The terms on which the principal allows the worker to do the work
• Not allowing the worker to do, or to continue to do the work
• The way the principal affords or does not afford the worker access to opportunities for receiving a benefit, facility or service.
• Subjecting the worker to any other detriment.

Indirect discrimination occurs where the principal operates an apparently neutral provision, criterion or practice (PCP) that places people with a particular protected characteristic at a particular disadvantage as compared to people who do not share that characteristic. The claimant themself must suffer the same disadvantage. Indirect discrimination does not arise if the principal can objectively justify the PCP.

Facts

The Royal Parks Ltd (RPL) outsourced several of its functions, This included the cleaning services for park toilets and building maintenance, which were outsourced to Vinci Construction UK Ltd. The outsourced staff employed by Vinci were paid less than the London Living Wage (LLW), unlike RPL directly employed staff, who did receive it. In fact, the outsourcing tendering process had asked interested contractors to submit alternative bids: one based on paying their staff the LLW and the other not. RPL had originally opted for bids that did not pay the LLW. In response to pressure from trade unions and the threat of associated bad publicity it later changed its approach and decided that all contractors should pay the LLW to all staff as soon as possible after contracts came up for renewal.

16 of the Vinci staff alleged indirect race discrimination against RPL in respect of their pay, relying on section 41 of the EqA. They were successful in the ET but lost an appeal to the EAT.

The claimants alleged that it was the policy or practice of RPL, while paying the LLW to its own employees, not to require, or fund, its contractors to pay it to the indirectly-employed workforce. (There was in fact a significant dispute about how the PCP was framed, which we return to below.)

The claimants alleged that the PCP had a disparate impact on BME staff, including them on the basis that RPL's directly employed workforce was predominantly white and the Vinci employees working on the RPL contract were predominantly BME.

The claim succeeded in the ET but this was overturned on appeal to the EAT, based on the PCP issue.

Decision of the Court of Appeal

The court dismissed the appeal, based on the scope of section 41 of the EqA.

The court concluded that the reference in section 41 to "the terms on which the principal allows the worker to do the work" does not include the terms arising under the worker's contract of employment with the service provider (in this case, Vinci). Nor did the reference to "any other detriment" cover those contractual terms. On this basis, the claim failed.

The court undertook a review of relevant authorities in reaching its conclusion, in particular Allonby v Accrington and Rossendale College [2001]. It held that the authorities clearly distinguish detriments arising from the workers' contract of employment in contrast to, for example, access to facilities on the principal's premises. Issues arising from the worker's terms of employment fall outside section 41. The court noted that this position aligns with equal pay law.

The court went on to comment that, in any event, it struggled with the view that RPL had effectively dictated the Vinci workers' pay. In the court's opinion, the reality of commercial outsourcing is that it could often be said that the outsourcer effectively dictates levels of pay, to a greater or lesser degree, as pay is heavily dependent on the contract price that the principal agrees to. 

The PCP issue

This was a case-specific issue but highlights the importance of careful pleadings. At the hearing, the claimants advanced a case centered on the Vinci contract – they brought evidence to show that the workers on the Vinci contract were predominantly BME and were not paid the LLW. However, in the claim form and at various other preliminary stages of the proceedings, they had advanced a PCP which covered all of RPL's outsourced contracts i.e. that RPL had a practice of not requiring the LLW to be paid to any of its indirect workforce. The correct identification of the PCP had a crucial impact on the evidence that the claimants needed to present – i.e. did they also need to present evidence about the terms of the other contracts and the alleged disparate impact on BME staff across all of those contracts.

The employment tribunal decided that the PCP could be framed as just focusing on the Vinci contract and that, accordingly, the claimants had discharged the burden of showing disparate impact. The EAT however held that it was clear that the alleged PCP had covered all the outsourced contracts. Because the claimants had not presented evidence about the other contracts, the claim failed. The Court of Appeal also agreed, albeit that it had disposed of the appeal on the scope of section 41 point outlined above.