Tribunals could be able to order companies guilty of "systemic discrimination" to carry out equal pay audits

Lynne Featherstone said that the new power would be used in cases where there was likely to be "systemic discrimination" in a company. The change would supplement the Government's existing voluntary reporting scheme for companies who are "committed to diversity", she said.

"We strongly believe that a light-touch approach is the best way to encourage most employers to deal with the complex causes of unequal pay," she said. "But it is right to take strong action in the few cases where employers have been shown to have breached the law."

The Government would consult on exactly what companies will be required to publish as part of one of these 'equal pay audits', she said. Companies with fewer than ten employers, or which can demonstrate that they have carried out a pay audit in the past three years or already have transparent pay practices will be exempt from the new rule.

Employment law expert Selwyn Blyth of Pinsent Masons, the law firm behind Out-Law.com, said that employment tribunals already had the power to make employer recommendations that went beyond the specifics of a particular tribunal case in discrimination cases that were not to do with equal pay. However, there were no direct penalties for companies that failed to comply with these recommendations.

Under the Government plans an Employment Tribunal would be able to impose civil penalties to companies which did not carry out an audit it had ordered. Blyth said that companies will also pay a reputational price.

"As tribunal findings are public there will be reputational issues to consider for companies that do not comply – particularly if they were later faced with similar claims,” he said. 

The Equality Act, which in 2010 was one of the last major pieces of legislation passed by the Labour government, contained a power to force employers with 250 or more employees to produce regular reports on the gender pay gap within their organisation. However, this power has never been enacted.

The Act also introduced the broad power for employment tribunals to make recommendations for the benefit of the wider workforce. Previously a tribunal's power to make recommendations was limited to what steps an employer should take to reduce the adverse effect of the discrimination on the person bringing the claim, but this could only be used if that person was still working for the company.

The Government said that a pay audit would be "likely" to be ordered where an employer had breached the law and could not show any reason why there was a difference in pay between men and women.

Selwyn Blyth said that, if introduced, the possibility of being forced to conduct an equal pay audit could have significant consequences for employers beyond the considerable administration costs which would be likely to encourage more companies to settle discrimination claims before the tribunal stage.

"Equal pay audits are complex, and require considerable costly bureaucracy," he said. "However, what will make this an extremely relevant settlement consideration is what an equal pay audit could potentially uncover."

A number of public sector organisations including local authorities and NHS Trusts had recently carried out equal pay audits, he said, which in many cases had "made transparent certain pay inequalities" between men and women - particularly in the area of performance-related bonuses.

Several of these equal pay claims have already occurred in local authorities across the UK where historically certain roles have been carried out by only one gender. Each case has so far ended in a settlement, including a test case involving dinner ladies and female care workers with Sheffield City Council which was settled in September 2011 just before it was due to be heard by the Supreme Court. The council in that case had argued that bonuses paid to workers in typically male professions, such as refuse collectors and street cleaners, were paid to boost productivity and had nothing to do with gender.

Editor’s note 19/6/12: A reader pointed out that the Government plans include the power for Tribunals to impose civil penalties on a company that does not conduct an equal pay audit it has ordered. We have added that information to the story.