Pay parity after insourcing - when differential treatment becomes unlawful

Background

In the case of A Anne & Ors v Great Ormond Street Hospital for Children NHS Foundation Trust, the Employment Appeal Tribunal (EAT) considered claims of indirect race discrimination brought by a large group of hospital cleaners following the insourcing of cleaning services.

The claimants, described within the judgment as a "group of black and minority ethnic (BAME) individuals", had worked at Great Ormond Street Hospital for many years while employed by an external contractor. During that period, they were paid at London Living Wage rates rather than the Agenda for Change pay and benefits received by directly employed NHS staff undertaking equivalent roles.

When cleaning services were brought in-house, the claimants transferred to employment with the Trust. However, they were not moved immediately, or shortly thereafter, onto Agenda for Change terms. They argued that both before and after the transfer this approach placed them at a particular disadvantage because of race.
The Employment Tribunal dismissed the claims in full. The claimants appealed, and the Trust cross-appealed.

EAT decision

The EAT distinguished between the pre-transfer and post-transfer periods.

For the pre-transfer period, the appeal failed. The EAT confirmed that claims by outsourced workers about contractual pay set by their employer fall outside the scope of protection against discrimination by a principal. Even where a principal has commercial influence or contractual leverage over a supplier, that does not convert pay terms into something imposed by the principal. As a result, the claims relating to the period when the claimants were employed by the contractor could not succeed.

The outcome was different for the post-transfer period. From the date of transfer, the claimants were employees of the Trust and could bring claims based on how the Trust treated its own workforce.

The EAT held that the Employment Tribunal had misdirected itself by applying the same reasoning to the post-transfer period as it had to the outsourcing period. The relevant practice relied on by the claimants after transfer was not about contractors at all, but about how the Trust treated different groups of its own employees. The comparison was therefore between transferred cleaners and other Trust employees performing roles paid at the relevant pay bands.

On the Tribunal’s own findings, a prima facie case of indirect race discrimination had been made out. A significantly higher proportion of the transferred cleaners were from ethnic minority groups compared with other employees on equivalent pay bands, and the delay in moving the cleaners onto Agenda for Change terms placed them at a particular disadvantage.

The EAT also confirmed that the Trust had not objectively justified the delay. Although the Tribunal had made some legal errors in its analysis of transfer-related restrictions on changing terms, those errors did not affect the outcome. The evidence showed that the Trust had contractual flexibility to improve pay and conditions from the point of transfer, and the Tribunal had already found that the approach taken to harmonisation was unnecessarily slow.

As a result, the EAT substituted a finding that the post-transfer claims of indirect race discrimination succeeded.

Learning points for employers

This decision is an important reminder that different legal considerations apply before and after insourcing. While organisations are generally not responsible for the contractual pay terms of outsourced staff, that position changes immediately on transfer. Once workers become direct employees, employers must actively consider whether maintaining legacy terms creates unjustified disparities, particularly where those disparities disproportionately affect workers from certain racial backgrounds. Delay in harmonising pay and benefits will require clear, robust justification, and reliance on complexity or phased implementation may not be sufficient where contractual mechanisms exist to act sooner.

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For more information or advice, please contact Alastair Fatemi in our Employment team.