Can an employer justify paying employees differently for work of equal value simply because of market conditions? This was the central question in Next Retail Ltd and Next Distribution Ltd v Thandi and Others [2026] EAT 130, a recent Employment Appeal Tribunal (“EAT”) judgment examining the relationship between equal pay and commercial necessity.
Background to the dispute
In 2018, 3,540 Next retail sales consultants brought equal pay claims on the basis that they received lower wages and certain benefits than warehouse operatives.
In 2023, the Employment Tribunal determined that the two groups performed work of equal value, despite their different responsibilities. However, their pay remained unequal. The retail workforce was approximately 77.5% female, compared with 47.22% of warehouse operatives.
Next argued that the difference reflected genuine labour market conditions. It faced greater difficulties recruiting and retaining warehouse staff and therefore needed to offer higher wages. Retail vacancies, by contrast, attracted substantially more applicants.
In August 2024, the Tribunal rejected Next’s defence in relation to basic pay. Although it accepted the recruitment difficulties, it concluded that Next had failed to justify paying retail employees less, particularly given its financial ability to increase their wages.
What did the EAT decide?
On 7 September 2026, the EAT allowed Next’s appeal concerning basic pay.
Under section 69 of the Equality Act 2010, employers may justify differences in pay through a material factor unrelated to direct sex discrimination. Where that factor places one sex at a particular disadvantage, it must also be a proportionate means of achieving a legitimate aim.
The EAT found that the original Tribunal had approached Next’s justification incorrectly. Rather than focusing on why retail employees were paid less, it should have examined why Next needed to pay warehouse employees more. As Mr Justice Bourne observed, this “was not a case where warehouse workers were paid more simply because warehouse workers tend to be paid more.”
The distinction was that Next had genuine recruitment and retention difficulties which did not apply equally to its retail workforce. The EAT therefore found that the Tribunal had made errors in its assessment of Next’s legitimate aim and the proportionality of the pay difference.
However, the EAT upheld the finding that the pay arrangements placed female retail employees at a particular disadvantage. It also upheld findings against Next concerning certain other benefits, including overtime premiums and paid rest breaks.
What does this mean for employers?
The judgment demonstrates that market forces can justify differences in pay, even where employees perform work of equal value. However, paying the market rate is not an automatic defence.
Employers must be able to demonstrate genuine commercial reasons for pay differences and, where those differences disproportionately disadvantage one sex, establish that their approach is proportionate.
The decision is also a reminder to examine individual elements of remuneration separately. A justification for higher basic pay will not necessarily justify differences in bonuses, premiums or other contractual benefits.
The judgment provides some reassurance for employers operating in competitive recruitment markets. However, where employees performing work of equal value receive different remuneration, employers should be prepared to explain those differences and demonstrate why they are justified.
W Legal can provide advice and training on equal pay obligations and the practical implications of this judgment. If you have any questions or would like a confidential discussion about your organisation’s pay arrangements, please contact our Head of Employment, Charlotte Yallop at charlotte.yallop@wlegal.co.uk
