EAT rules that discontinuing childcare vouchers during maternity leave is not discriminatory | EEF

EAT rules that discontinuing childcare vouchers during maternity leave is not discriminatory

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In Peninsula Business Services v Donaldson, the Employment Appeal Tribunal (EAT) overturned an employment tribunal’s decision that it was discriminatory for an employer to require as a condition of joining its salary sacrifice childcare voucher scheme that employees agree to membership of the scheme being suspended during maternity leave.


Most childcare voucher schemes offered by employers operate by virtue of salary sacrifice, whereby an employee ‘sacrifices’ a certain amount of their salary in return for vouchers which they then use to pay for childcare and as a consequence make tax and national insurance savings.

Under the Maternity and Parental Leave Regulations 1999 (the Maternity Regulations) an employee on maternity leave is entitled to benefit from all the terms and conditions of her employment other than ‘remuneration’. An employee therefore continues to be entitled to receive benefits during maternity leave.

On-going legal uncertainty around whether the proper classification of salary sacrifice childcare vouchers for the purpose of maternity leave entitlement is ‘remuneration’ or ‘a benefit’ has led to a situation where, in order to avoid risk of discrimination claims, most employers operating such schemes have continued to provide vouchers to employees throughout their maternity leave, even where the employer does not enhance maternity pay and the employee only receives SMP so is not in a position to ‘sacrifice’ salary for the vouchers she continues to receive.

To date, this position has been supported by most childcare voucher providers and is inline with HMRC guidance, which classes childcare vouchers under a salary sacrifice scheme as a ‘non-cash benefit’ and specifically makes reference to the requirement to continue to provide them during maternity leave. However, the practice of continuing to provide salary sacrifice childcare vouchers during maternity leave, regardless of income, is an unwelcome cost for most employers. Others fail to operate such schemes precisely because of this perceived ‘windfall’ requirement.

In the case of Peninsula, the employment tribunal decided that a clause limiting an employee’s entitlement to childcare vouchers during maternity leave was discriminatory on the grounds of sex and amounted to unfavourable treatment of the claimant due to her assertion of her statutory right to maternity leave.  This finding seemed consistent with the above prevailing risk assessment. However, in coming to its decision the tribunal made extensive reference to the HRMC non statutory guidance. Peninsula appealed. 

EAT decision

The EAT surprisingly allowed Peninsula’s appeal and dismissed Ms Donaldson’s claim.

The EAT emphasised that the critical issue for consideration was whether salary sacrifice childcare vouchers constituted ‘remuneration’ for the purposes of the Maternity Regulations. Contrary to existing majority perception, the EAT concluded that they do.

In so deciding, the EAT found that such schemes should properly be seen as a ‘diversion’, rather than a ‘sacrifice’ of salary as they allow for money which the employee has earned to be diverted to buy childcare vouchers prior to going into an employees' pay packet. As such, salary sacrifice childcare vouchers constitute ‘remuneration’ for the purposes of the Maternity Regulations and do not therefore need to be continued during maternity leave. 

Further, the EAT concluded that Parliament could not have intended that employees receive such an additional windfall during maternity leave, as this inevitably had the effect of putting many employers off offering what was otherwise a very valuable scheme for both employer and employee.

The EAT was critical of the employment tribunal’s reliance on HMRC’s guidance in its decision making. For the purposes of entitlements under the Maternity Regulations, the EAT found it made no difference that childcare vouchers were described as a ‘non-cash benefit’ in the Income Tax (Earnings and Pension) Act 2003, as this legislation dealt with tax savings in relation to the purchase of childcare vouchers, not their status in relation to maternity leave entitlements.

The EAT was also at pains to make it clear that the position was different if child care vouchers were being provided ‘in addition’ to an employee’s salary as opposed to via salary sacrifice. If this were the case, they would be a ‘benefit’ and as such must be continued during maternity leave.

Impact for employers

Employers should exercise caution before jumping to make immediate changes to any existing salary sacrifice childcare voucher arrangements on the back of the EAT’s decision in this case.

Firstly, the EAT itself was tentative in its findings, taking care to specifically acknowledge that it “may not have identified all the provisions which might be relevant”. This is a somewhat unusual admission on the part of the EAT, which must make the decision ripe for a challenge.  It is not yet clear whether Ms Donaldson, who had been acting in person, will have the stomach or resources to fight on alone. However, this is an area keenly watched by maternity rights organisations and charities, who will see the EAT’s decision as erosive of maternity entitlements, and may well be willing to back an appeal.

However, even if the EAT’s decision remains unchallenged, employers looking to reconsider their current operation of salary sacrifice childcare voucher schemes in light of the EATs findings should take care to look at the terms on which they currently operate. Employers who have committed to maintaining vouchers during maternity leave as part of the employment contract will be unable to draw back from that now without risking breach of contract claims

Many employers may well decide to let sleeping dogs lie in relation to the operation of their current salary sacrifice childcare voucher schemes regardless of the EAT’s decision. This appellant decision comes very late in the day for employer salary sacrifice childcare voucher schemes.  A new tax free childcare scheme is due to come into force in early 2017, and although exact details of this new scheme are yet to be confirmed, what is known is that employees will not be allowed to join existing employer childcare voucher schemes once the new scheme comes into operation. As it is usually the new joiners of such schemes who take maternity leave, the potential financial savings available through changing the operation of existing schemes which ultimately have a limited life span in any event, may well be seen as not worth the procedural hassle or potential employee backlash involved.       

How can EEF help?

Employers wishing to hone their skills more generally in relation to changing terms and conditions should book a place on EEF’s national seminar, ‘Changing employment terms – your solution to current pay challenges’. For more information or to book at place click here.


Principal Legal Adviser

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