In Peninsula Business Services Ltd v Donaldson the Employment Appeal Tribunal (EAT) considered whether it was discriminatory for an employer to suspend the provision of childcare vouchers during maternity leave. Elizabeth Walker reports.

Ms Donaldson was employed by Peninsula and wished to join its childcare voucher scheme, which was operated by way of salary sacrifice. However, Peninsula made it a condition of entry that the provision of the vouchers would be suspended when the employee was on maternity leave. She was pregnant at the time and believed that the condition was discriminatory and refused to join.

She brought claims alleging the imposition of the condition meant Peninsula had treated her less favourably and/or subjected her to a detriment for asserting a right to maternity leave and had indirectly discriminated against her on the grounds of sex. This was on the basis that the employer was in breach of Regulation 9 of the Maternity and Parental Leave Regulations 1999, which provides that, during maternity leave, an employee is entitled to the benefit of all their terms and conditions of employment except remuneration.

She argued that the childcare vouchers should be continued as they were a non-cash benefit and not remuneration. HMRC guidance specifically states that these vouchers are non-cash benefits rather than remuneration even if provided by salary sacrifice. The tribunal upheld her claim. Peninsula appealed.

The EAT upheld the appeal. It considered that the vouchers provided by way of salary sacrifice should be regarded as remuneration for the purposes of Regulation 9, as it was effectively a diversion of salary with the money earned being redirected to buy the vouchers.

The EAT did not think tax legislation was determinative and also that HMRC guidance was incorrect. It considered that, otherwise, continuing vouchers could leave a windfall benefit to employees and a cost to employers because, while employees are on SMP, there is no salary to divert to pay for the vouchers.

This might ultimately discourage employers from offering the scheme and could not be what Parliament intended, as the purpose behind the scheme was to enable more women with children to remain or return to the workplace. They found that entry to the scheme was voluntary, there was no contractual entitlement to the vouchers and that the failure to provide them was not in breach of Regulation 9.

Practical considerations

Employers should be aware that this decision only applies to childcare vouchers provided by way of salary sacrifice and not where they are an additional benefit on top of salary in which case they should be continued during maternity leave. In addition, employers considering withdrawing the vouchers during maternity leave following this decision should seek advice before doing so in case there is an express or implied contractual entitlement to them.

The EAT acknowledged that it did not feel completely comfortable with its decision on this difficult issue, advising future litigants to treat it with caution as it was concerned that it may not have considered all the applicable legislation. This is possibly because the claimant was not represented and, therefore, the arguments on discrimination were not as fully explored as they might have been. It is not known whether there will be an appeal.

The Government announced in the March 2016 budget that these voucher schemes will be closed to new entrants from April 2018. Its new tax-free childcare scheme will be launched in early 2017.

Last reviewed 18 May 2016