Sex discrimination: Provision of childcare vouchers during maternity leave - DAC Beachcroft

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Sex discrimination: Provision of childcare vouchers during maternity leave

Published 15 abril 2016

In this case, the EAT considered whether it is discriminatory for employers to discontinue childcare vouchers during maternity leave.

The facts

Many employers who provide childcare vouchers by way of salary sacrifice grapple with the issue of whether they need to do so while an employee is on maternity leave. During maternity leave, the employee is entitled to the benefit of all the terms and conditions of her employment that would have applied had she not been absent, except for her remuneration. Until this case, it hadn’t been clear whether childcare vouchers should be treated as remuneration or as a non cash benefit. If remuneration, employers would not have to provide them during maternity leave. HMRC guidance provides that the employer must continue to provide them. However, while an employee is on Statutory Maternity Pay (SMP), there can be no deduction from salary. The cost of the childcare vouchers is not, therefore, deducted from the employee's salary, but a cost to the employer over and above SMP.

Mrs Donaldson was employed by Peninsula, which offered employees a childcare voucher scheme by way of salary sacrifice. It was a condition of entry to the scheme that the vouchers would be suspended if the employee was on maternity leave. Mrs Donaldson believed the condition of entry was discriminatory, and refused to join the scheme. She brought a tribunal claim of, among other things, pregnancy and maternity discrimination. The tribunal upheld her claim, noting the HMRC guidance, and considering that the childcare vouchers were a non-cash benefit. Accordingly, the condition of entry was discriminatory.

The EAT upheld Peninsula's appeal against this decision. It distinguished between childcare vouchers, which were provided by salary sacrifice, and childcare vouchers which were provided in addition to salary. The judge referred to "salary sacrifice" as a misnomer, saying that it was a diversion rather than a sacrifice of salary. The employee has earned the salary, but it is redirected before being placed in the employee's pay packet. The voucher should therefore be regarded as part of remuneration and does not have to be continued during maternity leave. The judge also discussed the policy reasons for this decision, referring to the "windfall" for the employee, and the cost to the employer, which might have the effect of discouraging employers from offering such schemes.

What does this mean for employers?

This case is a step in the right direction from an employer's perspective. However, the EAT expressed its conclusions "somewhat tentatively", and it acknowledged that the arguments were finely balanced. There were also arguments that could have been pursued further. There is room for an appeal, so it is possible this is not the last we will hear of this. Accordingly, employers should treat this judgement with some caution. 

However, if Peninsula is correctly decided and not overturned on appeal, employers will not be required to provide childcare vouchers through salary sacrifice during maternity leave.  Employers who adopt this approach should note that the increased salary would need to be taken into account when calculating the first six weeks of statutory maternity pay. They should also check whether the employees have a contractual right to continue to receive the vouchers. 

This only applies to childcare vouchers provided by way of salary sacrifice, not vouchers that are provided in addition to salary, which should be provided throughout maternity leave. 


Richard Loxley

Richard Loxley

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