Next equal pay appeal: why evidence matters when relying on market forces

The Employment Appeal Tribunal’s (EAT) decision in Next Retail Ltd & Anor v Thandi & Ors [2026] EAT 130 is an important development for employers facing equal pay claims.

The headline is that market forces, recruitment pressures and retention issues can, in the right circumstances, amount to a material factor capable of objectively justifying a difference in pay. However, the decision should not be read as giving employers a simple defence to equal pay claims.

What did the EAT decide?

The claim was brought by around 3500 female retail sales consultants who compared themselves with predominantly male warehouse operatives. Their work had already been found to be of equal value.

The original Employment Tribunal found that Next had failed to justify certain pay differences, including basic hourly pay. It treated Next’s explanation as being, in substance, about cost saving, which is not enough on its own to justify indirect pay discrimination.

The EAT held that, on the Tribunal’s own findings of fact, the only legally permissible conclusion was that the difference in basic pay was a proportionate means of achieving a legitimate aim.

It found that the Tribunal had asked the wrong question by focusing on why Next had not increased retail pay, rather than why it had paid warehouse workers more. On the Tribunal’s own findings, the answer was specific recruitment and retention pressures in the warehouse labour market.

Importantly, the EAT did not disturb the Tribunal’s finding that the pay arrangements placed women at a particular disadvantage.

The claimants also cross-appealed, arguing that the Tribunal should have found direct discrimination because Next relied on market forces without positively proving that those market forces did not themselves disadvantage women. The EAT rejected this. Whether unequal treatment is because of sex remains a question of fact in each case: it is not automatically established merely because an employer relies on a market-forces factor and does not disprove a discriminatory effect. The EAT did note that a borderline case could arise where the discriminatory effect of market forces is evident and the employer is shown to have known of, or sought to take advantage of, that effect, but on the facts here, the Tribunal had rejected the claimants’ case that retail pay was suppressed because of historic gender-based discrimination, and had substantially rejected the claimants’ expert evidence on that point.

Market forces are relevant, but not automatic

The decision confirms that employers can rely on market forces as part of a material factor defence. That will be particularly relevant for employers with different workforce groups operating in different labour markets.

The judgment also reinforces the approach taken by the Court of Appeal in Heskett v Secretary of State for Justice [2020] EWCA Civ 1487. Rather than reducing an employer’s justification to a simple question of cost saving, tribunals must fairly characterise the employer’s aim as a whole.

However, “market rate” is not a magic phrase. Employers still need to show why the higher pay was genuinely needed.

There is a difference between paying more because of a real recruitment or operational pressure, and simply relying on historic market rates without demonstrating the genuine recruitment, retention or operational reasons for maintaining them. The first may be capable of justification. The second remains vulnerable.

The EAT was also critical of the Tribunal’s suggestion that treating market forces as a “trump card” would let employers sustain historically discriminatory pay indefinitely. It held this was not a fair characterisation of Next’s case: the warehouse workers were paid more for genuine recruitment and retention reasons, not simply because warehouse work has traditionally attracted higher pay in a male-dominated sector.

The employer does not need to justify withholding the benefit

One of the most useful points for employers is the EAT’s focus on the comparator group.

An employer does not necessarily have to justify why one group did not receive a benefit. It has to show the genuine, non-discriminatory reason why another group did receive it. A higher rate of pay, allowance or benefit may therefore be defensible where the employer can show that it was needed for a particular group because of recruitment, retention, service delivery, operational or other business reasons.

The fact that the employer may have had the financial resources to extend the same benefit to others does not automatically defeat the defence.

Evidence will be decisive

In Next, the defence succeeded because there were clear findings that Next faced specific recruitment and retention pressures in its warehouse workforce. The evidence showed that the warehouse roles operated in a different labour market and that reducing warehouse pay would risk the required level of service.

Employers who want to rely on market forces or operational need should consider whether they can evidence:

• when and why the pay arrangement was introduced;
• vacancy, turnover and attrition data;
• recruitment difficulties;
• market benchmarking;
• pay review records;
• operational or service delivery pressures;
• collective bargaining records; and
• whether the arrangement has been reviewed over time.

A rationale that existed when a payment was introduced may become more difficult to sustain if labour market conditions or operational needs later change.

Witness evidence may help, but it is unlikely to be enough on its own if there is no clear documentary record.

Why this matters for public sector employers

Although Next involved a private sector employer, the decision is likely to be relevant to public sector organisations, particularly where historic pay arrangements, allowances, bonuses or operational benefits have developed across different workforce groups.

Local authorities and other public bodies may be able to point to a combination of factors, including service delivery pressures, statutory obligations, health and safety considerations, recruitment and retention issues, morale, industrial relations, operational efficiency and cost control. The key point from Next is that those factors should be assessed as a whole, rather than reduced to a simple cost-saving argument.

However, those reasons need to be evidenced. A Tribunal will look at what the arrangement was designed to achieve, why it was needed, whether it was proportionate and whether the justification remained valid over time. For many public authorities, the real evidential challenge will not be identifying the current business rationale, but demonstrating why historic pay arrangements or allowances were introduced in the first place and whether that justification continued throughout the relevant period. Collective bargaining history may be powerful evidence of the rationale for a pay arrangement, but agreement with recognised unions will not, by itself, establish a material factor defence.

What should employers do now?

The Next decision is helpful for employers, but it is not a reason to be complacent.

Employers should review existing pay differences, allowances and benefits between workforce groups, particularly where those groups have different gender profiles.

The key questions are:

1. What is the actual reason for the difference?
2. Is that reason capable of amounting to a legitimate aim?
3. Is there evidence to show the difference is proportionate and remains justified?

The answer needs to be more than simply, “this is how we have always done it”.

The decision has reportedly already been the subject of appeal notices from both parties, so it is unlikely to be the final word on the role of market forces in equal pay litigation. For now, it is an important reminder that contemporaneous evidence explaining why pay differences arose, why they continued and whether they remained justified may prove just as important as the legal arguments themselves.