No childcare vouchers during maternity leave: upping the pressure during early months


Rachel Crasnow QC considers the recent judgment of the EAT in Peninsula Business Services v Donaldson (handed down on 9 March 2016)

Is it discriminatory to discontinue childcare vouchers during maternity leave? No, held the EAT in Peninsula Business Services v Donaldson, deciding that childcare vouchers amounted to “remuneration” and that it was not unlawful to require the Claimant to enter the voucher scheme only on her agreement that the provision of childcare vouchers would be suspended during any period of maternity leave.


Women employees on maternity leave are entitled to non-pay benefits pursuant to the Maternity and Parental Leave Regulations 1999 (MAPLR).

Peninsula Business Services operated a childcare voucher scheme under which employees would receive vouchers through a salary sacrifice arrangement. It was a condition of entry to the scheme that the employee agreed that Peninsula Business Services could suspend provision of vouchers during maternity leave, during which time Peninsula Business Services paid only SMP. Ms Donaldson wanted to join this scheme but refrained from doing so on such terms as she thought they were discriminatory. She claimed pregnancy and maternity discrimination under S.18 of the Equality Act 2010 as well as bringing an indirect discrimination claim.

The Employment Tribunal (ET) followed HMRC guidance that contractual non-cash benefits provided under a salary sacrifice scheme must continue to be provided during ordinary maternity leave, and decided it was discriminatory under Reg 9 of MAPLR for Ms Donaldson to lose childcare vouchers during her leave.

EAT judgment

When Peninsula Business Services (PBS) appealed the EAT decided that the HMRC guidance was wrong and that the ET had failed to address the key question of whether the vouchers constituted remuneration. Langstaff J held that the vouchers did represent part of salary since pay had been substituted with vouchers under a salary sacrifice scheme. Thus they were remuneration. They could lawfully be discontinued during maternity leave.

The EAT decided that the Tribunal wrongly assumed that the Childcare Voucher scheme of the employer was a benefit which the law required to be continued by a continuing supply of vouchers whilst she was on maternity leave.

The Tribunal rationalised the finding that the vouchers were part of remuneration on the basis that they arose from salary diversion – PBS submitted that the sum paid to the provider of childcare vouchers was part of the salary for the employee for whom and with which the voucher was then purchased. It argued that a childcare voucher did amount to wages since it was of a fixed value expressed in monetary terms and was capable of being exchanged for goods or services (a bike maintenance service would surely be construed in the same way). The benefit to the employee is less tax is payable on the salary then received (after “salary” has been diverted to pay for the childcare voucher).

This judgment does not affect vouchers paid as a benefit additional to salary since those do not involve an adjustment to salary. It is the fact that a part of the salary is redirected in order to purchase vouchers to the value of the salary utilised which led the EAT to find, contrary to the ET decision, that “the voucher is properly to be regarded as part of remuneration” [37]. Because the law permits the payment of lower sums by way of salary to those on maternity leave, the employer is entitled to withhold the vouchers (a diverted part of salary) during such leave.

The EAT’s judgment includes this logic at [38]:

if that employee previously paid for childcare out of that salary, she would have no more money than if she did not. Where, instead, the same money (overall) is used by arrangement with the employee to pay for childcare without the cost of it forming part of her pay packet, it is difficult to see why in principle she should be entitled not only to the minimum for which statute provides but also for the amount spent on childcare in addition”.

Despite this apparent logic, the implications of the decision are worrying.

Implications and comment

Whilst the EAT points to the advantage to employers of offering such vouchers as being to encourage more women with young children to remain in or return to the workplace, the EAT fails to point out that removing voucher provision during a period of maternity leave, and thus leaving women to cope at home with children, including a new-born, instead of nursery provision whilst dealing with the impact of SMP rather than usual salary, could be perceived as a punishment for going on maternity leave.

The suggestion that allowing vouchers to be available to those on SMP would be treating employees on maternity leave more favourably than those who are not, will not amuse those who are trying to live on £139.58 per week instead of their contractual weekly salary.

Nor would they agree that they are in practical terms receiving a “windfall benefit” (see [39]) during this period.

However, in deciding that vouchers paid for by way of salary sacrifice are to be regarded as part of remuneration, the EAT’s decision means that it will be lawful to withhold vouchers when on maternity leave.

When discussing the view that the continued provision of vouchers during maternity leave imposes a cost upon the employer, the EAT said “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.” This misses out the fact that employers can reclaim 92% of employees’ SMP, Paternity, Adoption and Shared Parental Pay (and can reclaim 103% if their business qualifies for Small Employers’ Relief).

Another concern is whether employers will now try to claw back the worth of vouchers provided to those previously on maternity leave? Would this be lawful?

New guidance on which non-cash benefits a woman on maternity leave is actually able to retain would be welcomed.

Working out how this fits into the already complicated regime of Shared Parental Leave, where discontinuous leave requirements are designed to be fitted in around nursery provision as well as different carers is a further minefield.

The EAT doubted that an indirect discrimination claim could work in any event. It also was unenthusiastic about a section 18 EqA claim since the claim related to terms and conditions of employment and so fell to be dealt with under the ‘equal pay’ provisions in Chapter 3 of Part 5 rather than as a case of direct discrimination. It could not, it found, have been unfavourable treatment to offer the Claimant entry into the scheme on the terms complained of.

So the judgment raises as many questions as it answers and leave this area of childcare provision in an unsatisfactory state.

Luckily the impact of the Peninsula case will eventually be somewhat limited, as a new tax-free childcare scheme is expected to come into force in early 2017, replacing the current one. The proposal is that working families can claim 20 per cent of their childcare costs, capped at £1,200 per child per year. As the scheme will be run through the State not employers, it will involve no question of the sacrifice or diversion of salary.

Cloisters has significant expertise in advising and representing clients in relation to pregnancy and maternity discrimination.  Please contact our clerks for further assistance.