Can an employer legally discontinue childcare vouchers during maternity leave?

07 June 2016

Maxine Orr, Partner, considers a recent EAT decision that ceasing a salary sacrifice scheme for childcare vouchers to female employees during periods of maternity leave was not discrimination.

Can an employer legally discontinue childcare vouchers during maternity leave?

An employee’s rights during maternity leave are protected depending on whether they amount to remuneration or benefits.   Recently, the Employment Tribunal decided that ceasing a salary sacrifice scheme for childcare vouchers to female employees during periods of maternity leave was not discrimination.

Mrs Donaldson, was employed by Peninsula Business Services and requested to join the childcare voucher scheme provided by her employer whilst she was pregnant.  However, she refused to agree to a clause in the agreement which stated that she would cease to receive the childcare vouchers when on maternity leave.  She was therefore denied access to the scheme.  She brought a claim for discrimination in the Employment Tribunal.    The Tribunal held that the clause was discriminatory on the grounds of sex, and further was unfavourable treatment for asserting a statutory right to maternity leave.  Peninsula Business Services appealed to the Employment Appeal Tribunal.

On appeal, the key question was whether salary sacrifice vouchers constituted “remuneration” or some other type of benefit.  Under the Maternity and Parental Leave etc. Regulations (Northern Ireland) 1999, women on maternity leave are entitled to continue to benefit from the terms and conditions of their employment, with the exception of terms connected to “remuneration”, given that this is usually replaced with statutory maternity pay.  All other benefits, including non cash benefits, should continue to be received during maternity leave.  HMRC guidance categorises childcare vouchers administered under a salary sacrifice scheme as a “non cash benefit”, the reason being that the vouchers are non-transferable, paid to childcare providers and cannot be converted into cash.  However, if the vouchers constitute remuneration, under the 1999 Regulations, they are not required to be continued during periods of maternity leave. 

The EAT held that HMRC guidance which states that non cash benefits provided under salary sacrifice arrangements “must continue to be provided” during maternity leave, did not have any legislative basis.  It decided that the vouchers provided under a salary sacrifice scheme should be more appropriately termed a “diversion of salary, which the employee has earned but which is redirected prior to it being placed within the employee’s pay packet, in order to purchase vouchers to the value of the salary utilised” and should therefore be viewed as “remuneration”.   Langstaff J stated that the vouchers did represent part of a woman’s salary since pay had been substituted with vouchers.  On this basis, the vouchers were to be regarded as remuneration and could be discontinued during maternity leave.

Further, the EAT also held that it had not been the intention of Parliament to require employers to continue to provide vouchers at a time when there was no salary which could be sacrificed in respect of them.  The employees of Peninsula were entitled to statutory maternity pay only, which could not be diverted to obtain childcare vouchers.

Importantly, the EAT drew a distinction between employers with childcare voucher schemes which offer vouchers as an extra benefit in addition to basic pay, and therefore will still have to provide this benefit during maternity leave, and those employers who deduct money from the employee’s wages to pay for the vouchers, who will not need to continue to provide same during maternity leave.

Employer should not have a knee-jerk reaction to this decision as it may be subject to appeal and they may have a contractual right in the contract providing for payment during maternity therefore risking claims.  Professional legal advice should be taken by any employers on this issue to avoid costly tribunal claims.

Maxine Orr is a Partner, specialising in employment law in Worthingtons Commercial Solicitors, Belfast.

 

 

 

 

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