Is an employer obliged to continue to provide childcare vouchers during maternity leave?

That was a question resolved by the Employment Appeal Tribunal recently. In Donaldson v Peninsula Business Services ("Peninsula"), the Claimant attempted to join the Respondent's childcare vouchers scheme while she was pregnant. She was refused entry into the scheme because she would not agree to the Respondent's prerequisite of joining, that membership was suspended during maternity leave.

That was a question resolved by the Employment Appeal Tribunal recently.

 

In Donaldson v Peninsula Business Services ("Peninsula"), the Claimant attempted to join the Respondent's childcare vouchers scheme while she was pregnant. She was refused entry into the scheme because she would not agree to the Respondent's prerequisite of joining, that membership was suspended during maternity leave.

Donaldson issued a claim in the Employment Tribunal for, among other things, pregnancy and maternity discrimination under the Equality Act, primarily unfavourable treatment because of asserting a right to maternity leave. 

The Tribunal upheld her claim on the basis that as women on maternity leave are entitled to receive non-pay benefits, it must follow, should it not, that it is discriminatory to require them to forego such benefits during maternity leave? In its ruling, the Tribunal considered HMRC guidance which stated that during any period of ordinary maternity leave, contractual non-cash benefits provided under a salary sacrifice scheme must continue to be provided.

Peninsula appealed. The EAT upheld the appeal, stating that it could not have been Parliament's intention to require employers to continue providing vouchers at a time when there was no salary that could be sacrificed in respect of them. Moreover, it ruled that there was no legislative basis for the HMRC guidance the Tribunal relied upon when finding in favour of the Claimant.

The key question for the EAT was whether childcare vouchers constitute remuneration? If they do not, then as an "addition" to salary, they should continue to be provided during maternity leave. However, if they do constitute remuneration, then employers were perfectly entitled to discontinue them during maternity leave. The EAT held that childcare vouchers did constitute remuneration and so could be discontinued during maternity leave. On that basis the Claimant's claim failed.

The EAT's logic was that they regarded the scheme factually as being one of diversion, not “sacrifice”, of salary and so it constitutes remuneration, is not a benefit beyond wages and salary and that otherwise it would grant the employee a windfall. That logic would apply in the same way to salary sacrifice in the pensions context where employee pension contributions are replaced by employer ones. However, different legislation applies to a pension scheme, in particular Section 75 of the Equality Act 2010.  This was not considered by the EAT and it has a specific exemption for the employee's contributions not needing to be the same as when at work, but nothing to provide for the employer's. Therefore employers would be at risk of a claim if they did not continue employer contributions (including for salary sacrifice), although it would not be surprising if this is tested in a future case.

If any of the issues raised in this article affect your business, we would be delighted to discuss the issues with you.  Contact a member of our team for further assistance.