This week, Birmingham City Council formally declared itself in financial difficulty. It issued a Section 114 Notice which states that it has insufficient resources to meet its expenditures and is unable to agree on any solution which would provide suitable funding.
This is a drastic move by the Council. A Council cannot go bankrupt in the traditional sense – this Notice is the closest thing to it and causes a restriction now on all but essential spending for the Council. The Council will now be required to meet within 21 days to agree a response to the issues it faces.
This extraordinary measure has come about as a result of the Council facing a significant number of equal pay claims spanning many years. It has paid out significant sums in the past and, in its Notice, talks of an expected deficit of £87 million for the 2023/2024 financial year and projected costs of up to £760 million in respect of equal pay claims.
So where did it go wrong for the Council?
The Council cites some other reasons for its financial difficulty including the cost of implementing a new IT system and budget cuts, but it is clear that the impact of equal pay claims has been, and continues to be, substantial and the key driver for the Notice.
The Council was involved in a high-profile Supreme Court case back in 2012 in which 174 former employees, including cleaners, cooks and care staff, successfully argued that they were wrongly denied bonuses and other payments paid to men carrying out work of equal value – causing a bill to the Council of over £1billion. Since then hundreds more have brought similar claims.
The Council is certainly not alone in its equal pay issues and the Notice demonstrates just how bad things can get. Employers need to ensure that they have an effective system to identify and analyse any potential equal pay issues. They also need to ensure that monitoring is ongoing as roles develop, for example roles may become more skilled over time and pay may need to be reviewed to reflect this. If issues are identified, employers need to act quickly to assess and mitigate the risks and budget for any potential claims. The issues are complex and depending on the circumstances can stem from historic issues which may have even been inherited from a third party, for example via a TUPE transfer. Effective due diligence in these circumstances will be crucial.
We can assist you with all aspects of equal pay, so please do not hesitate to get in contact with our specialists in the Clarkslegal Employment Team. Don’t end up in a position like the Council where you simply cannot see any way out!