Next Retail Ltd and Next Distribution Ltd v Thandi and others [2026] EAT 130

As we know (previoius articles: here and here) Ireland has missed the 7 June 2026 deadline for transposition of the EU Pay Transparency Directive (the Directive). However, the EU Commission has confirmed that it will not stop the clock on the transposition deadline or simplify the requirements of the Directive. This means that, although Ireland has not yet transposed the Directive in full, the legal transposition deadline of 7 June 2026 remains unchanged and the Commission may act against the Irish government in respect of late transposition.

One of the hallmarks of the new legislation is that employers will need to put in place pay structures ensuring equal pay for equal work or work of equal value, underpinned by objective and gender-neutral criteria. In this insight, we examine a recent case that provides valuable guidance for employers who are grappling with the question of how best to establish and apply objective criteria in their organisations.    

Background

In this English equal pay case, a group of predominantly female retail sales employees of Next Retail Ltd and Next Distribution Ltd (together, Next) alleged that they performed work of equal value but received lower pay and less favourable contractual benefits to warehouse operatives within Next, (a workforce with a slight male majority). Over the relevant period, 77.5% of the retail sales employees were women, while the warehouse workforce was 52.78% male and 47.22% female. The claims were first brought in 2018 and while the proceedings before the Employment Appeal Tribunal (EAT) concerned 3,540 retail sales employees, the total number of claimants involved in the wider litigation has since increased to over 6,000.

Employment Tribunal decision

In June 2023, the Employment Tribunal (ET) found that the work of three lead retail claimants was of equal value to that of four warehouse comparators. Next did not appeal that finding.

In August 2024, the ET considered whether Next could justify the differences in pay and benefits between the two groups from 2012 to 2023 by relying on the material factor defence under section 69 of the Equality Act 2010. The difference in basic hourly pay was £0.92 in 2012 and had reduced to £0.38 by 2023. Next argued that the higher warehouse rates reflected market rates and were necessary to recruit and retain sufficient staff.

Although the ET accepted that there were specific recruitment pressures in the warehouse labour market, it concluded that Next’s decision to maintain the pay differential was ultimately based on cost. It held that cost alone was not a legitimate aim and noted that Next could afford to increase retail pay.

The ET therefore upheld the claimants’ equal pay claims in respect of basic pay and certain other benefits. However, while it found that the pay arrangements placed women at a particular disadvantage, it did not find that Next had directly discriminated against the claimants because of their sex. The decision was reported as potentially exposing Next to compensation and back-pay liabilities of more than £30m.

See the full Employment Tribunal judgment here.

Employment Appeal Tribunal decision

Next did not appeal the finding that the retail and warehouse roles were of equal value. It appealed the ET’s conclusions on its material factor defence, including its findings on basic pay and certain other benefits. The claimants cross-appealed the finding that there had been no direct sex discrimination. The appeal was heard by the EAT in June 2026, with judgment delivered on 7 September 2026.

Particular disadvantage

The EAT upheld the ET’s finding that Next’s pay arrangements placed women at a particular disadvantage. It held that the ET was entitled to take account of the different gender profiles of the retail and warehouse workforces and that it was entitled to consider Next’s use of the wider warehouse labour market to set basic pay.

Basic pay

The EAT allowed Next’s appeal in relation to basic pay.

It held that the ET had incorrectly focused on why Next had not increased retail pay, rather than considering the reason for the difference in pay between the two groups, including why warehouse operatives were paid more. The EAT found that the ET had taken too narrow a view of Next’s aims by characterising its justification as solely a costsaving measure. The ET itself found that Next needed to pay the applicable market rate to recruit and retain sufficient warehouse staff and maintain its warehouse service and that those same pressures did not apply to the retail workforce. The EAT held that Next’s aim, considered as a whole, was legitimate and could not properly be characterised as being solely concerned with cost saving.

The EAT also held that the ET erred in its approach to proportionality. The fact that Next could afford to increase retail pay did not determine whether the differential pay was justified. The issue was whether the higher warehouse pay was a proportionate means of meeting Next’s legitimate aim of recruitment and retention requirements, which the EAT concluded it was.

Other pay and benefits

Next succeeded in its appeal on unconsolidated awards and long service awards. The unconsolidated awards were one-off payments of between £25 and £100 made to warehouse staff as part of pay agreements negotiated with the Union of Shop, Distributive and Allied Workers (USDAW). It was held that these formed part of the warehouse employees’ overall pay package and were justified by the same recruitment and retention considerations as their basic pay. In relation to long service awards, the EAT overturned the ET’s findings. Warehouse staff generally received between £5 and £10 more per year than retail staff under arrangements negotiated with USDAW. The EAT held that the difference arose from Next’s negotiations with USDAW on the warehouse employees’ overall pay and that the ET should have considered why warehouse staff received the higher awards, rather than why Next had not increased the awards paid to retail staff.

Next’s appeal was unsuccessful in relation to night-work premiums, overtime premiums and paid rest breaks. The EAT upheld the ET’s finding that the reduction in the hours for which retail staff could receive a night-work premium was introduced to reduce costs, rather than to meet operational needs. It reached the same conclusion in relation to the removal of paid rest breaks from retail staff. The EAT therefore held that Next had not justified the differences in these benefits.

The position on Sunday pay premiums was remitted to the ET for reconsideration. Here, warehouse employees continued to receive higher Sunday premiums under legacy contractual arrangements preserved through collective bargaining. The EAT held that the ET had not properly taken those arrangements into account when considering whether the difference was justified.

Cross-appeal

The EAT dismissed the claimants' cross-appeal and upheld the ET's finding that there had been no direct sex discrimination. It held that reliance on market forces does not automatically amount to direct discrimination and that the ET had been entitled to conclude that Next's pay decisions were driven by recruitment and retention considerations as opposed to gender.

See the full Employment Appeal Tribunal judgment here.

Key takeaways

1. Employers may be able to justify paying one group more where the higher rate of pay is genuinely needed to recruit or retain staff.
2. A key focus that should be asked is why the higher-paid group receives more, rather than why the lower-paid group is not paid the same.
3. Whether or not the employer can afford equal pay does not, by itself, determine whether the pay difference is justified.
4. Pay and benefits must be considered separately.
5. Collective bargaining arrangements may help explain a difference in pay or benefits, especially where there are historic contractual entitlements.
6. Relying on market rates does not, by itself, amount to direct sex discrimination where the employer can show that the pay differential was driven by genuine factors such as recruitment and retention requirements rather than the sex of the employees.

What's ‘Next’?

While the government has confirmed that a phased approach to implementation is planned, there is currently no clear indication as to when the Directive will be transposed into Irish law. Employers should not view this as a reason to delay preparations. In fact, the additional lead-in time provides an opportunity to review existing pay structures and to develop the objective and gender-neutral criteria that will underpin future pay decisions.

The Next decision highlights the importance of being able to clearly articulate and evidence the reasons for pay differences between groups of employees. As employers prepare for the introduction of the Directive, they should ensure that they begin documenting the rationale for pay, progression and reward decisions. Taking these steps now will place employers in a stronger position to meet their future pay transparency obligations.

For more information, please contact Aisling Muldowney, Partner, Caoimhe Grogan, Associate or any member of the ALG Employment team.

Date published: 30 September 2026