3 May 2016

The Employment Appeal Tribunal (EAT) has determined that an employer did not discriminate against employees… Read more

The Employment Appeal Tribunal (EAT) has determined that an employer did not discriminate against employees on maternity leave by refusing to continue childcare voucher benefits during maternity leave, where those vouchers are purchased by way of a salary sacrifice arrangement.


During maternity leave, an employee is entitled to continue receiving the benefit of all of her terms and conditions of employment, except remuneration. ‘Remuneration’ is defined as including ‘only sums payable to an employee by way of wages or salary’. Unless an employer chooses to offer enhanced maternity pay, an employee’s remuneration is replaced by statutory maternity pay (or, if applicable, maternity allowance).

In Peninsula Business Services v. Donaldson, the employer offered its employees access to a childcare voucher scheme, via a salary sacrifice arrangement. In return for agreeing a lower basic salary, the employee would receive childcare vouchers equal to the amount of the salary that has been given up, thus providing a more tax-efficient means of purchasing childcare. The scheme rules included a condition that the provision of childcare vouchers and adjusted monthly salary would be suspended during any period of maternity leave (or other form of family leave).

Ms Donaldson became pregnant but refused to join the scheme on that basis. She brought a claim alleging that the suspension of childcare vouchers was discriminatory.

The Employment Tribunal upheld the claim. It ruled that the childcare vouchers were a ‘non-pay benefit’ (and therefore not remuneration), so Ms Donaldson was entitled to continue receiving them during her maternity leave. The employer’s refusal to allow her to join the scheme unless she agreed to forgo that benefit during maternity leave was unlawful discrimination on grounds of her exercising (or seeking to exercise) her right to maternity leave. Peninsula appealed to the EAT.

EAT decision

The EAT allowed the appeal. In doing so, it drew a clear distinction between a childcare voucher scheme that is operated via a salary sacrifice arrangement and one which the employer provides as a separate benefit, on top of salary.

Where there is no salary sacrifice arrangement, childcare vouchers cannot be classed as ‘wages or salary’ and therefore an employee is entitled to continue receiving them, at the employer’s cost, during maternity leave.

Conversely, a salary sacrifice involves a ‘diversion of salary’, which the employee has earned but which is redirected to the childcare voucher provider. The EAT concluded that this was still properly characterised as ‘wages or salary’, meaning that the employer was entitled to suspend access to the scheme during maternity leave. In particular, it stated that:

‘to require the continued provision of vouchers during maternity leave both produces a windfall benefit for [an employee] who is in such a scheme by also – more importantly – imposes a cost upon the employer… If entering such a scheme had the consequence that once employees became pregnant the employer would face a cost beyond that it would already face by provision of statutory maternity pay, it would have the effect of discouraging employers from offering such a scheme’.


The treatment of salary sacrifice benefits during maternity leave has long been a grey area and this provides some welcome clarification. In reaching its decision, the EAT cast doubt on HM Revenue & Customs guidance that non-cash benefits via salary sacrifice must continue to be provided during maternity leave, which appeared to have influenced the Employment Tribunal. It could not find any legal basis for this assertion (although it expressed this view quite tentatively).

There remain areas of uncertainty, particularly in relation to pension salary sacrifice arrangements (where different rules apply). The legislation states that pension rights continue to accrue during ordinary maternity leave (the first 26 weeks) and any paid additional maternity leave (up to another 13 weeks). There may be scope for employers to put in place measures to ensure that during maternity leave, any salary sacrifice relating to what would otherwise be employee pension contributions would cease to apply. It would appear arguable that employers would still be obliged to pay employer pension contributions (but only for 39 weeks) and would not have to cover any shortfall in employee contributions. However, the position is not clear.

In the meantime, this development may encourage some employers to consider providing childcare vouchers through salary sacrifice, to avoid the potential additional costs burden of continuing to provide them during maternity leave. They will need to consider carefully whether, in the context of their own benefits arrangements, such a proposal might constitute a change to employment terms requiring employee consent.

It is also worth noting that as part of the recent Budget, the Chancellor announced that childcare voucher schemes will be closed to new members from April 2018.