Tribunal clarifies approach to pay disparities for transferred workers

Helen Corden, an employment specialist at Pinsent Masons, was commenting after the appeal tribunal ruled that an employer acted unlawfully when it delayed moving a group of cleaners onto NHS pay rates after a TUPE transfer.

The decision (PDF (361KB / 37 pages) involved 80 cleaners who transferred to Great Ormond Street Hospital (GOSH) after years of working for an external contractor. Before the transfer, the contractor paid the cleaners the London Living Wage rather than the higher NHS Agenda for Change rates received by GOSH’s in‑house employees.

After the transfer, the hospital did not immediately align the cleaners’ pay and benefits with NHS terms. The cleaners, most of whom were from Black, Asian and Minority Ethnic (BAME) backgrounds, brought claims of race discrimination against GOSH, arguing that its approach perpetuated a disparity that disproportionately disadvantaged BAME staff.

The Employment Tribunal initially dismissed all claims and the cleaners lodged an appeal. However, the legal landscape shifted during the appeal process following the Court of Appeal’s decision in Royal Parks v Boohene. That decision established that the Equality Act 2010 does not allow employees of a contractor to complain to a principal organisation about pay differences between themselves and the principal’s directly employed staff. Applying this reasoning, the EAT confirmed that the cleaners could not challenge their pre‑transfer pay because GOSH was not responsible for the contractor’s historic pay decisions.

However, the EAT reached a different conclusion on the post‑transfer position. Once the cleaners became GOSH employees, they were entitled to compare themselves with other GOSH staff. On the Tribunal’s own factual findings, the pay arrangements after transfer placed the predominantly BAME group (78%) at a clear disadvantage compared to comparable GOSH employees, of whom 51% were BAME. This constituted a prima facie case of indirect discrimination.

TUPE, which stands for the Transfer of Undertakings (Protection of Employment) Regulations, protects employees if the business or service in which they are employed or assigned changes hands and effectively legally transfers any employees and associated liabilities from the old employer to the new employer.

In this case, the hospital’s Trust argued that any delay and associated indirect discrimination were objectively justified by TUPE’s restrictions on changing terms and conditions. However, the EAT rejected this argument, noting that the cleaners’ contracts contained a variation clause that would have permitted the Trust to move them onto NHS pay rates lawfully and without conflict with TUPE.

The ruling may prompt organisations, particularly within the public sector and contracted‑out services, to review their TUPE integration processes to ensure that pay structures do not inadvertently expose them to discrimination claims.

Commenting on the EAT’s ruling, Corden said: “The decision is a timely reminder that transferee employers must remain alert to potential discriminatory inequalities between transferred employees and the existing workforce. Even where contractual harmonisation is restricted by TUPE, employers cannot ignore the Equality Act 2010 risks associated with maintaining pay arrangements that disproportionately disadvantage protected groups.”

Where transferred employees’ contractual terms cannot be varied immediately due to TUPE restrictions, Corden urges organisations to assess the impact of pay differentials under the Equality Act and says employers will need to balance the legal constraints of TUPE against the discrimination risks under the Equality Act. “In some cases, employers may also be required to justify ongoing differences or take alternative steps to mitigate disproportionate disadvantage,” she added.

This decision comes ahead of a fresh wave of new employee protections under the Employment Rights Act (ERA) which are set to reshape how organisations manage outsourced workers, with measures designed to minimise differences of treatment that can arise in outsourced staffing models.

From 1 October 2026, a new statutory code of practice will come into force aimed squarely at preventing the emergence of “two‑tier workforces” where former public sector workers and outsourced private sector staff perform similar roles but remain on different terms and conditions. The government has positioned this code as a key tool in driving fairer treatment across blended workforces.

Further transparency measures are expected to follow that will impact outsourcing in public and private sectors. In 2027 – with the exact date yet to be confirmed – organisations will be required to include outsourced workers in their gender pay gap reports. This marks a significant shift, effectively widening the scope of pay gap reporting beyond direct employees and bringing outsourced arrangements into the spotlight for the first time. Forthcoming ethnicity and disability pay gap reporting regimes may also impose similar obligations, signalling a broader trend towards full‑workforce visibility.

Corden said these reporting duties are likely to place outsourcing strategies under greater scrutiny and employers should be mindful of the upcoming changes. “Principals and contractors alike will face renewed pressure to justify differences in pay and conditions where outsourced teams sit alongside in‑house staff,” she said. “For employers that rely heavily on outsourcing, the message is clear: risk management needs to start now. Taking a strategic, forward‑looking approach – including reviewing contract structures, assessing workforce disparities, and ensuring alignment with equality obligations – will be key to reducing exposure as the ERA reforms take effect.”