UK: Discrimination – tax treatment of compensation, zero hours claims, and equal pay comparators
- In Pettigrew v HMRC the First Tier Tribunal has held that settlement payments made by reference to underpaid past earnings arising out of a claim of discrimination against part-time workers were fully taxable as employment income. The appellant referred to the earlier case of Mr A v Commissioners for HMRC where it was held that a settlement sum representing underpaid salary and bonuses due to racial discrimination was not taxable, a decision which HMRC did not appeal. However, the Tribunal in Pettigrew did not accept this – noting in particular that the Tribunal in Mr A were not referred to the correct legal authorities and in particular the principles in Kuehne + Nagel (that for a payment to be an emolument, employment need not be the sole cause but only sufficiently substantial) and Mairs v Haughey (that a payment will usually take its taxable character from the payment which it substitutes). Both Pettigrew and Mr A are only First Tier Tribunal decisions and so not binding, but the case is a firm indication that HMRC is now likely to seek to fully tax compensation for loss of earnings arising from discrimination during employment.
- Employees on zero hours contracts are able to bring part-time worker claims comparing themselves with full-time employees. Individuals are only able to compare their treatment with that of individuals on the ‘same type of contract’; the EAT has confirmed that a zero-hours employment contract is the ‘same type’ as a full-time employment contract. The difference in the number of hours cannot render the contract a different type otherwise the purpose of legislation would be defeated. (Roddis v Sheffield Hallam University)
- The EAT has confirmed that the promotion or departure of an equal pay comparator part way through the period for which equal pay is claimed cannot be used to restrict the claim. Once a tribunal implies a contractual equality clause providing for pay equal to that of a male comparator from a specified date, the right is crystallised and ongoing from that date, regardless of what happens to the comparator subsequently and regardless of whether other valid comparators remain in post. (Reading Borough Council v James)