Next Retail Equal Pay Case: What Employers Can Learn From The 2026 Appeal

Equal pay claims continue to present a significant legal and financial risk for employers, particularly where different groups of employees perform work that has been assessed as being of equal value.

While the principle of equal pay is well established, differences in pay are not automatically unlawful. Employers can still lawfully justify pay differences in certain circumstances based on genuine business needs which can be objectively demonstrated.

The recent Employment Appeal Tribunal (EAT) decision in 1) Next Retail Ltd 2) Next Distribution Ltd v Miss M Thandi and others (2026) provides important guidance on when pay differences may be objectively justified. The case considered whether Next’s higher rates of pay for warehouse workers, compared with retail staff performing work of equal value, could be defended on the basis of recruitment and retention pressures.

The decision is a welcome reminder that market forces and genuine business needs can justify a difference in pay, provided that employers are able to demonstrate that those factors are legitimate and proportionate.

The law on equal pay

The Equality Act 2010 gives employees the right to receive equal pay with a comparator of the opposite sex who is carrying out:

1. Like work;
2. Work rated as equivalent; or
3. Work of equal value.

Where an employee establishes an equal pay claim, the employer may seek to rely on a “material factor defence”.

This allows the employer to justify a difference in pay if it can show that the disparity is due to a genuine material factor which is not related to sex.

Where the factor creates a particular disadvantage for one sex, the employer must also demonstrate that the measure is a proportionate means of achieving a legitimate aim.

Legitimate aims can include:

• Operational requirements
• Recruitment difficulties
• Staff retention needs

However, cost-saving alone will rarely be sufficient to justify a pay disparity.

The key question is whether the employer can evidence a genuine business reason for the difference in pay and show that the approach adopted was reasonably necessary to achieve that objective.

The Next equal pay case in the Employment Tribunal

In this case, the claim was initially brought by more than 3,500 retail sales consultants employed by Next, with Claimant numbers eventually rising to around 6,000.

The retail workforce was predominantly female, with 77.5% women making up the employees. The warehouse workforce by contract had a slight male majority of 53%.

The Claimants argued that they were performing work of equal value to warehouse operatives but were paid less, particularly in relation to basic pay.

As we previously covered, the Employment Tribunal (ET) initially found that the work undertaken by the retail employees and warehouse operatives was of equal value. It also found that the pay arrangements placed women at a particular disadvantage because of the gender composition of the two workforces.

Next argued that the higher rates paid to warehouse operatives were necessary to recruit and retain sufficient staff in a competitive labour market.

The ET accepted that market rates for warehouse workers were higher and that Next paid those rates to ensure operational effectiveness. However, it concluded that the employer’s justification amounted to little more than cost-saving and therefore this disparity in pay was not a legitimate aim. The ET also considered that Next could have afforded to increase retail pay and suggested there needed to be a more compelling business reason to justify the difference in pay.

Next’s payout based on this judgment was expected to surpass £60 million.

Next appealed to the Employment Appeal Tribunal (EAT).

The Employment Appeal Tribunal disagreed with the Employment Tribunal

Allowing Next’s appeal in relation to basic pay, the EAT held that the ET had approached the issue too narrowly.

Importantly, the EAT found that the Tribunal has asked the wrong question.

The correct question was not why Next had failed to increase retail workers’ pay, but why it had paid warehouse workers more. When viewed as a whole, Next’s objective was to recruit and retain sufficient warehouse staff to maintain an effective warehouse operation. That was capable of being a legitimate aim.

The EAT further held that the ET had incorrectly focused on Next’s ability to afford equalising pay.

Affordability was not the relevant test. Instead, the focus should have been on whether paying warehouse employees more was a proportionate means of achieving the recruitment and retention objective. The ET’s own findings showed that Next paid warehouse staff only what was necessary to maintain the workforce and service levels.

The EAT therefore concluded that the material factor defence succeeded in relation to basic pay and certain other benefits. However, Next was unsuccessful in relation to some elements, including paid rest breaks and certain premiums, where the differences were more readily characterised as cost-saving measures.

The claimants’ cross-appeal on direct discrimination was also rejected. The EAT confirmed that the ET had been entitled to find that the pay differences were not because of sex and that relying on market forces does not automatically amount to direct sex discrimination.

Where Next’s justification failed

Although Next succeeded on basic pay, the EAT did uphold the ET’s findings that several pay-related differences between retail and warehouse workers could not be objectively justified on the evidence presented.

Enhanced pay for “night work”

Warehouse employees received a night premium for work undertaken between 10pm and 6am but retail workers received the premium only between midnight and 5am, having previously been entitled to payment until 6am.

The EAT agreed that the reduction of the retail premium from 6am to 5am had been implemented purely as a cost-saving measure. As reducing costs alone is not a legitimate aim for the purposes of an equal pay defence, the difference could not be justified.

Overtime arrangements

Warehouse workers remained entitled to overtime premium payments, whereas the equivalent entitlement had been removed for retail workers.

The EAT found that the employer had failed to demonstrate that this difference was linked to any legitimate recruitment or retention objective.

Accordingly, the pay disparity could not be justified. However, the practical impact of this finding may be limited because retail workers did not generally work overtime.

Paid rest breaks

Warehouse workers were entitled to paid rest breaks, while retail workers’ breaks were unpaid.

Evidence showed that the paid rest break entitlement had been removed for retail staff to offset the increase in National Minimum Wage.

The EAT agreed that this amounted to a straightforward cost-saving exercise and therefore did not constitute a legitimate justification for the difference in treatment.

Therefore, whilst the EAT upheld the findings of the ET on these points, they did not actually suggest that differences in night premiums, overtime arrangements or paid breaks can never be justified. Instead, it was that cost saving alone was not a legitimate means of achieving a proportionate aim in this instance.

Learning points for employers from the Next equal pay decision

1. Recruitment and retention can be legitimate reasons for differences in pay

The EAT decision in this case, confirms that employers may be able to justify paying one group of employees more than another where higher pay is genuinely required to recruit and retain staff.

2. Cost-saving alone is unlikely to be enough

While commercial considerations inevitably influence pay decisions, employers should be cautious about relying solely on affordability arguments.

Tribunals will consider whether the true reason for a pay differential is simply saving money.

3. Evidence is critical

Employers seeking to justify pay differences should retain evidence supporting their pay decisions, including:

• Recruitment data
• Retention figures
• Benchmarking exercises
• Vacancy rates
• Market salary information

Contemporary evidence is crucial in order to defend an equal pay claim.

4. Focus on the reason for the higher pay

The EAT emphasised that the correct question is often why one group is paid more, rather than why another group is paid less.

Employers should be able to explain clearly why the additional payment is required and what legitimate aim it achieves.

5. Conduct regular equal pay reviews

Businesses with different pay structures across departments, locations or functions should regularly review pay arrangements.

This is particularly important where one workforce is predominantly male and another predominantly female.

Early identification and regular review of pay disparities allows employers to assess potential risks, gather evidence and consider whether objective justification exists before claims arise.

Recruitment and retention challenges can justify differences in pay

The EAT’s decision in 1) Next Retail Ltd 2) Next Distribution Ltd v Miss M Thandi and others (2026) is an important development in equal pay law.

The judgment demonstrates that pay differences are not automatically unlawful and can be justified where they are genuinely linked to recruitment and retention challenges.

However, employers must not assume that market forces alone will protect them from equal pay claims. The key lesson from the case is that employers must be able to evidence their rationale and show that differences in pay between workforces go no further than necessary to address the challenges.

Explore our employment law services for details on how AfterAthena can support, or get in touch today to speak with an expert.

Author – Emma Andersen, Associate Solicitor

FAQs

What is an equal pay claim?

An equal pay claim arises when an employee believes they are receiving less pay than a comparator of the opposite sex who performs like work, work rated as equivalent or work of equal value.

What is a material factor defence?

A material factor defence allows an employer to justify a pay difference where it is caused by a genuine factor unrelated to sex and, where necessary, is a proportionate means of achieving a legitimate aim.

Can recruitment and retention justify different rates of pay?

Yes. The Next Retail case confirms that recruitment and retention pressures can provide a legitimate justification for pay differences where employers can demonstrate that higher pay is necessary to attract and retain staff.

Is cost-saving a legitimate defence to an equal pay claim?

Generally, no. Cost-saving alone is unlikely to justify a pay disparity, although cost may sometimes form part of a broader legitimate business objective.

What should an employer do to mitigate the risk of an equal pay claim?

Employers should conduct regular equal pay reviews to demonstrate why a certain group is paid more, with clearly evidenced justification.