In Next Retail Ltd and Next Distribution Ltd v Thandi and others [2026], the EAT overturned a significant part of an Employment Tribunal decision which had found that Next could not justify paying higher basic rates of pay to predominantly male warehouse workers than to predominantly female retail staff whose work had been found to be of equal value.
This is likely to be an influential judgment in future equal pay litigation where employers seek to justify pay differences by reference to labour market conditions, recruitment needs and operational requirements.
Background
More than 3,500 retail sales employees, predominantly women, brought equal pay claims against Next. An earlier Employment Tribunal (Tribunal) decision had already determined that the retail roles were of equal value to the warehouse roles used as comparators. The remaining issue was whether Next could justify differences in pay and benefits between the two groups.
Next had argued that the higher rates paid to warehouse staff reflected a number of genuine business factors, including market rates, recruitment and retention difficulties, the need to operate warehouses around the clock and the need to incentivise attendance and productivity. The Tribunal had accepted some of those arguments, but concluded that Next's "material factor" defence under section 69 Equality Act 2010 (EqA) failed in relation to basic pay and some other benefits, principally because the pay differential created a particular disadvantage for women which could not be justified.
The EAT agreed with the Tribunal that the claimants had established particular disadvantage, relying on the statistical differences between the retail and warehouse groups together with findings about benchmarking and patterns of part-time work. However, it held that the Tribunal had made errors in its treatment of legitimate aim and proportionality when considering justification.
Basic pay
On basic pay, the EAT held that the Tribunal had wrongly characterised Next's aim as "costs only, with no element of costs plus" and had failed to assess Next's objective as a whole. On the Tribunal's own findings, the higher warehouse pay reflected market rates, recruitment and retention pressures, and the need to maintain an effective warehouse operation; factors which did not apply in the same way to retail staff. The EAT held that the Tribunal had wrongly focused on why Next did not increase retail pay, and on whether Next could afford to do so, instead of focusing on why warehouse staff were paid more.
On the Tribunal's own factual findings, Next needed to pay the warehouse market rate to recruit and retain sufficient labour, and that was capable of constituting a legitimate aim. The Tribunal's proportionality analysis could not therefore stand. In any event, the EAT considered that the Tribunal had adopted an overly restrictive approach to market forces by treating them as impermissibly close to a "trump card".
Other contractual terms
The EAT also reviewed a number of other contractual terms. It held that the Tribunal's decision could not stand in relation to unconsolidated awards, because those payments were effectively part of the warehouse pay package negotiated through collective bargaining. It also identified errors in the Tribunal's approach to Sunday pay premiums and long-service awards, principally because it had failed properly to account for the significance of collective bargaining arrangements and legacy entitlements within the warehouse workforce.
By contrast, the EAT upheld the Tribunal's reasoning in relation to some other items, including the night-time premium and paid rest breaks, finding that the Tribunal had been entitled to conclude on the facts that the relevant differences stemmed from cost-saving decisions affecting retail staff, rather than from justified business needs.
Cross-appeal
The claimants argued that the Tribunal should have found direct sex discrimination because the market forces relied on by Next were themselves influenced by gendered assumptions, and because Next had not called more senior decision-makers or produced certain documentary evidence.
The EAT rejected those arguments. It held that direct discrimination under section 69(1)(a) EqA requires less favourable treatment because of sex, and that the Tribunal had been entitled to find as a matter of fact that Next's decision-makers were motivated by commercial and operational considerations rather than gender, whether consciously or subconsciously. Next's HR witnesses had provided a sufficient evidential basis for that conclusion, despite an absence of evidence from board-level decision-makers.
Key takeaways
The judgment provides welcome clarification on how tribunals should approach legitimate aim and proportionality under section 69 EqA, and is likely to feature prominently in future equal pay litigation. Key takeaways for employers include:
- Recruitment and retention pressures, labour market conditions and the need to maintain an effective service can amount to legitimate aims capable of justifying pay differences.
- An employer does not necessarily have to increase the claimants' pay to match that of a comparator group where the higher comparator pay is itself explained by a legitimate, non-sex-related rationale.
- The fact that an employer could afford to increase pay will not, by itself, determine whether a pay differential is justified. The EAT drew a distinction between preserving higher pay or benefits for a group because of a specific business need, and removing benefits from another group simply as a cost-saving measure.
- Market forces remain capable of justifying differences in pay, but they will not automatically do so. Their significance will depend on the facts of the particular case.
- Collective bargaining arrangements may form an important part of the explanation for differences in pay structures and benefits.
What can you do now?
1. Document the rationale for pay differences. Be able to explain clearly why higher rates are paid to particular roles, locations or business functions and demonstrate that those decisions are linked to genuine business needs. Document this at the time decisions are made. A rationale that appears obvious when a pay decision is taken can be much harder to evidence years later when defending litigation.
2. Keep evidence of recruitment and retention pressures. Labour market data, vacancy rates, applications per vacancy, turnover figures, use of agency labour, recruitment costs and evidence of staffing shortages may all help support a justification defence.
3. Review pay-setting processes. Ensure that decisions about pay rates are made consistently and that the reasons for those decisions are properly recorded.
4. Monitor equal pay risks regularly. Organisations with predominantly male and predominantly female workforces in different business areas should understand where pay disparities exist and identify the factors that explain them.
5. Act before claims arise. Equal pay audits, pay governance reviews and documenting the business reasons for pay differentials can be much easier to undertake before litigation starts than many years later when witnesses and historical evidence may no longer be available.
6. Stress-test market-rate justifications. Consider whether you could still evidence the business need for higher pay several years later in litigation. If not, further evidence may be required now.
7. Don't focus solely on equal value. Even where roles may be found to be of equal value, a carefully evidenced material factor defence may still succeed.
