UK Employment Appeal Tribunal Confirms Market Forces Can Justify Equal Pay Differences

Just in time for International Equal Pay Day 2026, the Employment Appeal Tribunal (EAT) has provided important guidance on when market forces, recruitment pressures and operational requirements may justify paying one group of employees more than another group performing work of equal value.

The EAT’s recent judgment in Next Retail Ltd and Next Distribution Ltd v Thandi and others [2026] EAT 130 considered the application of the material factor defence in equal pay claims and provides a number of useful takeaways for employers:

• Genuine market forces, recruitment and retention pressures can in some circumstances support a material factor defence
• The correct focus is generally on why the comparator group is paid more, not why the claimant group is paid less
• Tribunals should assess the reason for the difference in pay, rather than asking whether an employer can afford to equalise pay
• Cost considerations do not necessarily invalidate an otherwise legitimate business aim, but relying on cost saving alone will generally be insufficient
• Employers still need evidence connecting each pay difference to the factor relied upon

The decision is helpful for employers operating businesses in which different functions have distinct labour markets. However, it does not make “market rates” an automatic defence to equal pay claims. The EAT upheld findings against Next in relation to some other contractual benefits outside of basic pay where the evidence showed that the difference resulted from a decision to save costs rather than a sufficiently distinct operational or recruitment need.

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