Chapter 1 of Part VIII of the Employment Rights Act provides that an employee who exercises her rights under the Act is entitled to the benefit of the terms and conditions of employment which would have applied if she had not been absent but not remuneration.
Several years ago, when the issue of whether benefits under salary sacrifice should continue during maternity leave arose I questioned whether HMRC’s guidance was legitimate and, indeed, whether HMRC were the correct agency to determine how employment law should be interpreted.
Their guidance was, and still is, that benefits provided under a salary sacrifice arrangement had to continue during the whole of maternity leave, both paid and unpaid. The exception being employer contributions into the employee’s pension fund which only continued during paid leave.
HMRC’s guidance now appears to have been incorrect.
On the 9 March, the Employment Appeal Tribunal handed down its ruling in the case of Peninsula Business Services and Laura Haley Donaldson.
Laura Donaldson was an employee of Peninsula Business Services and refused to join the childcare voucher salary sacrifice scheme run by Peninsula because it required her to suspend membership of the scheme during maternity leave.
Laura Donaldson raised a challenge and an Employment Tribunal (ET) held that it was discriminatory to offer such terms, on the grounds of sex citing sections 18 and 19 of the Equality Act.
Peninsula Business Services appealed and argued that the provision of childcare vouchers under a salary sacrifice scheme was within the meaning of "remuneration" in the 1999 Regulations and that the conclusion in respect of s.19 of the Equality Act was erroneous. since jurisdiction was excluded by the provisions of the Act as to the operation of equality clauses in terms and conditions. The ET had based its decision on HMRC’s guidance which was erroneous. Peninsula argued that a salary sacrifice scheme was a diversion of salary from the to the voucher provider, and HMRC had misunderstood the essential nature of the scheme. They also argued that it had not been the intention of Parliament to require employers to continue providing vouchers at a time when there was no salary which could be sacrificed in respect of them. Additionally, no recovery could be made from Statutory Maternity Pay.
The appeal was allowed.
There has been no indication of whether an appeal will be made on behalf of Laura Donaldson.
Assuming no appeal is made, the implications of this ruling are enormous. Quite simply it turns perceived wisdom upside down. It would mean that employers will not have to continue to provide benefits to an employee on maternity leave.
For childcare vouchers alone, the saving could be up to £2,916 (12 x £243) if an employee takes the full 12 months leave.
However, many employers provide salary sacrifice opportunities which go beyond just child care vouchers – cycle to work, health care, cars, parking at work etc. We are considering the ramifications but it will be interesting to see if an appeal is made.
The full details of the case can be found here.
