Paying employees differently is not unusual. Different departments often have different recruitment challenges, varying skill shortages, and separate commercial pressures. Employers regularly rely on these factors when setting pay levels across their workforce.
However, the litigation involving Next Retail highlights an important question: when can employers legitimately rely on market forces to justify pay differences, and when might those differences create legal risk?
Equal value does not mean equal pay.
The claim was originally brought by 3,540 predominantly female retail employees who argued that they were being paid less than warehouse operatives, despite the roles having previously been found to be of equal value.
In 2024, the Employment Tribunal found in favour of the retail employees, concluding that although the jobs were different, they were of equal value and that Next Retail had failed to justify the difference in basic hourly pay. The decision would have required Next Retail to equalise basic pay between the two groups and exposed the retailer to significant back pay claims.
Next Retail appealed, arguing that higher wages for warehouse staff were necessary due to recruitment and retention pressures in the warehouse labour market, pressures which did not apply to its retail workforce.
In September 2026, the Employment Appeal Tribunal overturned the ruling on basic pay, accepting that these market pressures provided a legitimate business justification for the higher rates paid to warehouse workers.
Why were the two groups being paid differently?
For employers, that distinction is important. Equal pay claims do not necessarily arise because two jobs are identical. They can arise where different roles have been assessed as being of equal value, but one group receives higher pay or additional benefits.
The Appeal Tribunal’s decision.
In September 2026, the Employment Appeal Tribunal overturned the earlier ruling in relation to basic hourly pay.
The Tribunal accepted that Next Retail faced genuine recruitment and retention difficulties within its warehouse workforce. To attract and retain staff, the company paid warehouse workers at a higher rate than retail employees.
The key issue was whether those higher rates were linked to gender or whether they were genuinely driven by market conditions.
The Appeal Tribunal concluded that Next Retail had a legitimate business reason for the difference. The evidence showed the retailer paid warehouse staff what it needed to pay to fill roles in a competitive labour market and no more. The pay disparity was therefore caused by recruitment and retention pressures rather than sex.
Importantly, however, that did not bring the litigation to an end. Other elements of the claim, including issues relating to overtime payments, paid rest breaks and night-shift premiums, remain ongoing.
Market forces are not a free pass.
Some employers may look at the decision and conclude that market conditions will always provide a defence to equal pay claims. That would be a risky assumption.
The case does not establish that recruitment difficulties automatically justify paying one group more than another. It demonstrates that employers must be able to show clear evidence of the business reasons behind the decision. In Next Retail’s case, the Tribunal was persuaded that there were genuine labour market pressures affecting warehouse recruitment and retention.
Employers seeking to rely on similar arguments will need to demonstrate that those pressures existed, influenced pay decisions, and continue to justify any ongoing pay differences. Simply pointing to historic practices or saying “that is how we have always done it” is unlikely to be enough.
Looking beyond the pay difference.
One of the most important lessons from the case is that employers should be able to explain not only what they pay employees, but why. Pay structures often develop over many years. Decisions made to address a recruitment challenge at one point in time can become embedded within an organisation long after the original justification has disappeared. That creates risk.
A pay difference that was justified five years ago may not necessarily be justified today. If challenged, employers may need to produce evidence showing why the disparity exists and why it remains necessary.
The longer a pay practice continues without review, the harder it can become to demonstrate a clear rationale behind it.
What should employers be doing?
The Next Retail litigation serves as a reminder for employers to review their pay arrangements before they are challenged.
Employers may wish to consider:
- whether there are significant pay differences across various parts of the workforce;
- whether those differences can be supported by clear evidence;
- whether recruitment and retention issues relied upon historically still exist;
- whether market data supporting pay decisions has been retained;
- whether pay structures are reviewed regularly; and
- whether any pay disparities disproportionately affect one gender.
Regular pay reviews and audits can help to identify potential issues before they develop into costly and time-consuming litigation.
Why this case matters.
The significance of the Next Retail litigation extends beyond the retail sector.
The case demonstrates the scale that equal pay claims can reach when pay practices are challenged. Even where an employer successfully establishes a defence, the costs, management time, and disruption involved in years of litigation can be substantial. More fundamentally, the case highlights the importance of evidence.
Market forces, recruitment difficulties and retention pressures may all justify pay differences. However, employers should ensure those reasons are properly documented, supported by evidence, and kept under regular review.
As the Next Retail litigation demonstrates, being able to explain a pay disparity can be just as important as the disparity itself.
How can we help?
We advise employers on all aspects of equal pay, discrimination, and workforce remuneration.
Our Employment Team can assist with:
- Equal pay audits and risk assessments;
- Reviewing pay structures and grading systems;
- Advising on recruitment and retention-based pay differences;
- Defending equal pay and discrimination claims;
- Reviewing policies and practices to reduce litigation risk; and
- Providing strategic advice on pay and reward structures.
If you would like advice on equal pay issues within your organisation, please contact our Employment Team.
