The EAT has today handed down judgment in the case of Djalo v Secretary of State for Justice, an important case about the scope of discrimination claims in the contracting out context. The case establishes that section 41 of the Equality Act 2010 does not permit a discrimination claim to be brought by a contract worker against a principal about pay under the worker’s contract with their own employer, even where it is claimed there is a contractual power on the part of the principal to require the employer to pay a certain level of pay (in this case the London Living Wage (“LLW”)).
The facts
The Claimant is employed as a cleaner by OCS Limited (“OCS”), a private company that provides facilities management services to the Ministry of Justice (“MOJ”), pursuant to a contract with the Respondent (“the FM Contract”). It was common ground that the Claimant does not have a contractual relationship with the Respondent. She alleged that the Respondent had indirectly discriminated against her by denying her a level of pay which the Respondent had paid its own directly employed staff and that workers in her position were disproportionately black or other minority ethnicity (“BME”). She contended that the Respondent had a contractual power to require OCS, her employer, to uplift her pay to the London Living Wage (“LLW”), by virtue of a clause of the FM Contract. She argued that the Respondent had applied a provision, criterion or practice (“PCP”) of (1) according different levels of pay to direct employees and to contract workers under the FM Contract and/or (2) had required workers to be directly employed in order to be remunerated in accordance with the Respondent’s pay scale and that this had caused group disadvantage for BME workers.
The ET’s decision
At a Preliminary Hearing the ET struck out the Claimant’s claim on the basis that sections 19 and 41 of the Equality Act 2010 (“EqA”) do not protect a claimant contract worker against differences between their level of pay and that paid by the principal to its own employees.
The Royal Parks v Boohene
After the Claimant’s appeal to the EAT was permitted to proceed to a full hearing, the Court of Appeal (“CA”) handed down judgment in The Royal Parks Ltd v Boohene and others [2024] IRLR 668 (“Royal Parks”). Importantly. the CA in Royal Parks determined that section 41 EqA does not permit a discrimination claim to be brought by a contract worker against a principal which relates to the remuneration payable under the worker’s contract with their employer, the supplier.
The Claimant’s Appeal
In her amended notice of appeal the claimant argued, amongst other things, that:
The EAT’s Decision
The scope of s.41 and the principle in Royal Parks
Mrs Justice Heather Williams DBE, sitting in the EAT, decided that the ET was correct to conclude that the claim could not come within section 41 EqA. After a detailed analysis of the judgment of Underhill LJ in Royal Parks, which was binding on the EAT, Heather Williams J opined that his lordship had identified a clear distinction between complaints concerning rights arising from the employer-worker relationship, which were outside the terms of section 41, and detriments stemming from the principal-worker relationship, which could come within it. Heather Williams J held that this distinction was identified as a “clear-edged one of principal, rather than a continuum whereby a particularly high level of direction or dictation by the principal as to the terms of the worker’s employment contracts with the supplier might tip the circumstances into section 41 territory”. Nothing in Underhill LJ’s reasoning suggested that a contractual power of the sort argued here would be an exception to this otherwise clear dichotomy; indeed, such a conclusion would run contrary to Underhill LJ’s line of reasoning.
Ultimately Heather Williams J concluded that the existence of a contractual power on the part of the principal to require the supplier to pay its employees at the LLW level would not give rise to a section 41 claim against the principal on the basis that it had chosen not to exercise that power in circumstances where it pays its own employees at the higher LLW level. Such a complaint would still be a complaint about the rights arising from the employer-worker relationship (the level of pay), rather than about the principal-worker relationship.
Was there a contractual power?
Whilst the above ruling on the scope of s.41 and Royal Parks would have offered a complete answer to this appeal, Heather Williams went on to consider, on the facts, whether there was any realistic prospect of the Claimant showing that the relevant clause conferred a legal right on the Respondent to make payment of the LLW compulsory for contract workers. Heather Williams J’s conclusion was that there was not; the EJ’s construction of the contract was correct. The relevant clause identified a compensation event i.e., a contractual mechanism which enabled OCS to pass on its costs to the Respondent in the particular circumstances identified; it was not a provision that was aimed at conferring additional powers to the Respondent. The relevant event identified was any enactment by the Government of a compulsory living wage rather than referring to any change in the contract workers’ wage levels effected by one of the parties.
Single source principle
The Claimant’s single source argument was dependent on the EAT accepting that it was arguable both that the Respondent had a contractual power to uplift pay and that this provided a material point of distinction from Royal Parks. As Heather Williams J rejected both propositions, it followed that the Race Directive single source argument must fail.
Nevertheless, Heather Williams J went on to decide that in any event the ECJ’s judgment in Allonby v Accrington & Rosendale College and others [2004] ICR 1328 was fatal to the Claimant’s attempt to rely on the single source principle, even if she did have an arguable case about the contractual power. This was because the ECJ in that case had been quite clear that the fact the level of pay received by the applicant was influenced by the amount which a principal (a college) had been willing to pay her employer was not a sufficient basis for concluding that the difference in income and other benefits between the applicant and full-time male lecturers employed by the college was attributable to a single source.
The PCPs and their application
Furthermore, the EAT decided the Claimant had no realistic prospect of meeting the section 19 EqA requirements for a claim of indirect discrimination.
The ET had been wrong to conclude that the second PCP was not an arguable PCP, for a number of reasons including that there was no requirement that the parameters of the pool be obvious from the formulation of the PCP.
In contrast, the first PCP was incapable of amounting to a proper PCP because it was not a complaint about an ostensibly neutral PCP that is applied to both the group that shares the claimant’s protected characteristic and the comparator group and which disadvantages the former; it was a complaint about overtly differing treatment of the two groups arising from two different PCPs.
In any event, in Royal Parks the CA had held that a principal cannot as a matter of law be regarded as applying a PCP to a contract worker as to their contractual pay. Heather Williams J declined the Claimant permission to raise a new argument that the Race Directive does not require a PCP to have been applied to a Claimant by the Respondent, save for in the sense of it causing the relevant disadvantage.
Article 14
The EAT also rejected the claimant’s argument under Article 14. The CA in Royal Parks had proceeded on the basis that the court’s construction of section 41 was consistent with the single source principle. There was therefore no difference in treatment. In any event, the claimed article 14 discrimination was not “within the ambit” of either article 8 (with which there was no more than a tenuous link) or article 1 of Protocol 1 (on the basis that the Claimant could not show that but for the discriminatory ground she would have had an enforceable right in domestic law to equality of pay in LLW terms). Moreover, the Steer v Stormsure Ltd [2021] EWCA Civ 887, [2021] ICR 1671 “package principle” applied. As Saini J had explained in R (AA and another) v Secretary of State for Education and others [2022] EWHC 1613 (Admin), the Claimant needed to establish the existence of less favourable treatment and, in order to determine that it was necessary to consider the full picture of the respective benefits and respective disadvantages concerning their claim and the comparator claim in a holistic manner. As this argument arose from the essential requirements of a discrimination claim, there was no distinction of principle to be drawn between aspects of the claims that relate to liability and those that relate to remedies or to procedure. In the present case the claimant had not discharged, or arguably discharged, this burden. The Claimant’s appeal was therefore dismissed.
Tom Kirk represented the Respondent, the Secretary of State for Justice, instructed by Kunal Duggal at the Government Legal Department. Richard O’Keeffe (led by Jeremy Lewis KC at Littleton Chambers and instructed by United Voices of the World) represented the Claimant /Appellant.
