Posted on: Feb 24, 2016
Extending Equal Pay to Pay Equity?
Dating back to the pre-industrial era, women in New Zealand have been paid less than men. Over time, discrimination against women in the workplace has been recognised, and legislation has been developed to prevent it. New Zealand’s labour and human rights laws prohibit discrimination in pay or employment opportunity, and provide equal pay for men and women doing the same job, in both the public and private sectors. Despite the best intentions of the legislation, the gender pay gap has remained. In the June 2014 quarter, the gender pay gap in New Zealand was 9.9 per cent. This means that a typical New Zealand male earned about 10 per cent more for an hour’s work than a typical New Zealand female.
Until recently, pay equity has had relatively little traction in New Zealand. This is where the Service and Food Workers Union Nga Ringa Tota Inc v Terranova Homes and Care Ltd case comes in (Terranova). This case is the first in many years under the Equal Pay Act 1972, and has so far had noteworthy success in what appears to be extending ‘equal pay’ (meaning equal pay for equal work) to ‘pay equity’ (meaning equal pay for work of equal value).
The key aspect of the Terranova decision was the Employment Court’s acceptance that in some circumstances, it may be necessary to “look more broadly”, to compare jobs of similar value outside of the enterprise or industry. In doing so, the Court appears to be transforming the previously narrow and restricted application of ‘equal pay’ towards a more broader ‘pay equity’ approach.
The Terranova case is a very important judiciary decision for New Zealand, is rather progressive on international standards, and has the potential to create significant changes for New Zealand’s labour force.
The Terranova Case
In essence the claim was that the female caregivers employed by Terranova Homes were being paid “a lower rate of pay than would be the case if caregiving of the aged were not so substantially female dominated, because those caregivers were female”. The basis of the claim was that because caregiving is female work, this work has been undervalued compared to similar work performed predominately by males, as a result of historical and structural gender discrimination. The claim suggested that the Court needed to look at the rates paid to other caregivers, and to males performing similar work in other industries.
The key issue for determination at the preliminary stage was the scope of the requirement for equal pay for female employees for work exclusively or predominantly performed by them, and how compliance with this requirement was to be assessed.
The Court acknowledged various sources of information which all suggested that care work is generally seen as women’s work, and that women’s work is historically undervalued. Therefore, the Court considered that “[t]he potential for discriminatory distortion of any comparator used underpins the arguments advanced in favour of a broader interpretation …”.
The Court then looked further to the interpretation, acknowledging that there was “no express reference to either the workplace or sector within which the relevant employee works”, and concluded “[i]t is clear that s 3 (1)(b) assumes a comparison with a hypothetical male”. Of particular significance is the following passage from the judgement:
 … If a comparator that is uninfected by gender discrimination cannot be found within the workplace or the sector it may be necessary to look more broadly, to jobs to which a similar value can be attributed using gender neutral criteria.
The final part of the Terranova case was in relation to the Court’s jurisdiction under s 9. The Court found that s 9 “conferred a broad jurisdiction on the Court to state general principles to be observed for the implementation of equal pay”. The Court then went on to state eight preliminary questions and provide their answers to them. Of these, two were then challenged by Terranova Homes in the Court of Appeal.
The two questions that were under appeal both related to the interpretation of s 3(1)(b) of the Act:
In determining whether there is an element of differentiation in the rate of remuneration paid to a female employee for her work, based on her sex, do the criteria identified in s 3(1)(b) of the Equal Pay Act require the Court to:
- identify the rate of remuneration that would be paid if the work were not work exclusively or predominantly performed by females, by comparing the actual rate paid with a notional rate that would be paid were it not for that fact; or
- identify the rate that her employer would pay a male employee if it employed one to perform the work?
Answer: Section 3(1)(b) requires that equal pay for women for work predominantly or exclusively performed by women, is to be determined by reference to what men would be paid to do the same work abstracting from skills, responsibility, conditions and degrees of effort as well as from any systemic undervaluation of the work derived from current or historical or structural gender discrimination.
In considering the s 3(1)(b) issue of “…the rate of remuneration that would be paid to male employees with the same, or substantially similar, skills, responsibility, and service, performing the work under the same, or substantially similar, conditions and with the same or substantially similar, degrees of effort”, is the Authority or Court entitled to have regard to what is paid to males in other industries?
Answer: They may be if those enquiries of other employees of the same employer or of other employers in the same or similar enterprise or industry or sector would be an inappropriate comparator group.
The Court of Appeal considered the parties differing positions on these questions and answers, and ultimately concluded; “in answering the two questions in the way it did, the Employment Court has not misinterpreted the Act”. The Court dismissed Terranova Homes’ appeal.
While the Employment Court appear to have extended the application of the Equal Pay Act from equal pay to pay equity in the Terranova case, we must now await for the Court to state the principles that are to apply. Those principles should “provide the Employment Court and the parties with a workable framework for the resolution of Ms Bartlett’s claim”, and may for example “identify appropriate comparators and guide the parties on how to adduce evidence of other comparator groups or issues relating to systemic undervaluation”.
This is potentially complex, controversial and time-consuming exercise. The final outcome of this case could be a long way off. Unless the parties settle this matter outside of the Court, the guiding principles still need to be set and the substantive case still needs to heard. There may then be further appeals. The final outcome remains very much a work in progress.
As the preliminary question to any pay equity claim will often be concerning the identification of an appropriate comparator, it is interesting to examine what approach has been taken overseas, and see what similarities or differences there may be. Of particular interest, is comparing the use of a hypothetical male comparator, and allowing a comparator from outside of the industry or sector – the two somewhat contentious aspects of the Terranova case.
The comparable piece of legislation from the United Kingdom is the Equality Act 2010. This is essentially an extension of the Equal Pay Act 1970, which had the intention “to prevent discrimination, as regards terms and conditions of employment, between men and women”.
The Equal Pay Act required employers to give equal treatment regarding terms and conditions of employment to men and women employed on like work, or on work rated as equivalent, or of equal value.
The Act provided equal treatment for men and women in the same employment, so that where a woman was employed on work which was, in terms of the demands made on her (for example effort, skill and decision), of equal value to that of a man in the same employment, then any term of the woman’s contract must have been no less favourable to the woman than a term of a similar kind in the contract under which that man was employed.
For woman to be regarded as employed on like work with men, her work and theirs must be of “the same or a broadly similar nature”, and any differences must be of no practical importance in relation to terms and conditions of employment. To determine that the women was employed on equivalent work as men, her work and theirs must have been rated as of equal value by an appropriate job evaluation system.
Comparisons have to be made between claimants and persons of the opposite sex engaged in comparable work, who are employed by the same employer (or an associated employer), and work in the same establishment or at workplaces in which terms and conditions are similar. The UK Equal Pay Act also required that comparisons must be made with a physical, existing person. The scope for comparison in the UK is therefore very narrow, and impossible for a woman to achieve equal pay for work of equal value if there is no male comparator in her establishment, or an establishment of the same employer with common terms and conditions of employment.
The Equality Act 2010 repealed and replaced the Equal Pay Act, although the provisions under the new Act were intended to be of equivalent effect and did not make any significant changes to the law relating to equal pay.
Under the UK law, the use of a hypothetical comparator is not usually allowed. There must be an actual male comparator for a woman to compare herself to, the comparator must be currently employed by the same employer, in the same establishment (or in a different establishment if they share the same terms and conditions), engaged to perform the same or broadly similar work having regard, where relevant, to whether the comparator has a similar level of qualification, skills and experience.
Therefore, under the UK law, the ‘Terranova approach’, as taken by the NZ Courts, could not have been possible. Firstly, in Terranova, the chosen comparator is hypothetical. The comparator is also not from the same employer, or from within the same establishment. The chosen comparator is not even from within the same sector, which is quite simply unconceivable in terms of the Equality Act.
Canada – Ontario
Ontario’s Pay Equity Act is considered by many as the world’s most progressive equal pay for work of equal value legislation. Some of the most novel features of the Pay Equity Act are that:
- it is the first such Act anywhere in the world to apply to the private as well as the public sector (although not to employers with fewer than ten workers);
- it is expressly designed solely to apply to women; and
- it is designed to provide affirmative action to redress perceived gender discrimination in the compensation of employees in ‘female’ job classes.
Under the Act, pay equity is considered to be achieved in an establishment when:
… every female job class in the establishment has been compared to a job class or job classes under the job-to-job method of comparison or the proportional value method of comparison and any adjustment to the job rate of each female job class that is indicated by the comparison has been made.
An establishment is defined under the Act to mean “all of the employees of an employer employed in a geographic division or in such geographic divisions as are agreed upon under section 14 or decided upon under section 15”. By allowing employers to define their establishment according to geographic divisions and requiring pay equity to be implemented in the establishment, the Act does not interfere with an employer’s ability to set wages and pay practices in different regions in response to local economic conditions.
The Act provides for three different methods of job evaluation; the job-to-job comparison, the proportional value and the proxy methods (however, the proxy method is only available under certain circumstances). It is the proxy method which is particularly relevant when comparing the New Zealand Courts’ approach as taken in the Terranova case.
The proxy method enables organisations in the broader public sector to obtain and apply pay equity information from another public sector organisation, allowing for comparisons to be made to job classes outside the organisation.
Using the proxy method of comparison, establishments with no male comparators are allowed to compare female job classes to the same female job classes in another public sector establishment that was able to achieve pay equity. The proxy method therefore enables workplaces that have mostly female job classes to find comparators outside of the workplace. Effectively, this allows the comparing of ‘apples and oranges’, however, the use of the proxy method of comparison is limited. Only public employers as defined by the Appendix to the Schedule of the Act are permitted to use the proxy method.
The Ontario Pay Equity Act is therefore considered more flexible than most in the sense that it allows comparisons to be across occupations, and in circumstances where there are no male comparisons, to be across employers. However, if a private sector employer has only female job classes or only male job classes, then pay equity cannot be achieved because no comparisons between male and female job classes are possible.
If one looked at the ‘Terranova approach’ in terms of the Ontario Equal Pay Act, it is possible that a similar approach could be taken. If Terranova was decided under the Ontario law, provided that the employer met the criteria for a broader public organisation (which is possible given the rest home received public funding), then in determining equal pay of a care worker, a hypothetical comparator may be found outside of the sector using the proxy method.
However, unlike Ontario, in Terranova, the use of a comparator from outside of the establishment or sector is not limited to the broader public sector. The New Zealand Equal Pay Act extends widely to cover all private sector employers, so in effect, the ‘Terranova approach’ goes further than what is allowed for under Ontario’s Pay Equity Act. New Zealand’s Equal Pay Act, as applied in Terranova, is superior. It could then be said, that New Zealand is heading into an unchartered domain…
Where to From Here?
It has been well recognised that the implications of the Terranova decision are “potentially far-reaching”, not only for the aged care sector, but for other predominately female occupations as well.
For employees, particularly women or workers performing roles traditionally regarded as women’s work, it is a massive step towards achieving equality in pay. For employers, impending challenges may lie ahead.
Potentially, this case could incite a large number of future pay and employment equity cases, and not just under the Equal Pay Act. This is already coming to fruition, for example, the New Zealand College of Midwives are bringing a pay equity claim against the Ministry of Health alleging discrimination on the basis of gender in breach of section 19 of the New Zealand Bill of Rights Act. The New Zealand Education Institute (NZEI) has also announced that a claim has been lodged in the Employment Relations Authority, alleging gender-based undervaluation of support workers at the Ministry of Education.
So it is clear to see that the implications of the Terranova decision are already starting to unfold. New claims are being brought, and multi-party negotiations are taking place. The concept of pay equity is building momentum, people’s expectations are changing, and previously accepted social and economic norms are being challenged more now than ever before. It is exciting to see New Zealand taking the leap from equal pay to pay equity, and leading the way forward on this global, fundamental, human rights issue.
We will keep you up to date with any progress made with this highly topical case.
 Measuring the gender pay gap (Statistics New Zealand, 2015) at 6.
 Service and Food Workers Union Nga Ringa Tota Inc v Terranova Homes and Care Ltd  NZEmpC 157 [Terranova].
 Terranova, at [46,] .
 Terranova, at .
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 Terranova Homes and Care Ltd v Service and Food Workers Union Nga Ringa Tota Inc  NZCA 516 at .
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 Equal Pay Act 1970 (United Kingdom), long title.
 Section 1(1).
 Section 1(4).
 Section 1(5).
 Section 5(1).
 The analogy “comparing apples with oranges” was referred to in Terranova, at .
  NZCA 516 at .
This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.