Government guidance is “not a proper basis for decision making in the courts”, says EAT

The Employment Appeal Tribunal (EAT) recently handed down its judgment in the case, Peninsula Business Services Limited v Donaldson. The decision is believed to be the first of its kind to consider the legal status of childcare vouchers provided through a salary sacrifice scheme.

The employer in the case had stipulated that those joining the scheme must withdraw from it during maternity leave. But women on maternity leave are entitled to benefit from all the terms and conditions of employment which would have applied to them had they been at work, except those relating to ‘remuneration’.

An employment tribunal had decided in the case that childcare vouchers, in line with HMRC guidance, were not remuneration but ‘non-cash benefits’ and that the employer’s condition for joining the scheme was direct maternity discrimination and indirect sex discrimination.

The tribunal confirmed that the employer had to continue to provide childcare vouchers, via the salary sacrifice scheme, throughout the whole of the employee’s maternity leave, including periods of unpaid leave, and for its employees only receiving statutory maternity pay (from which an employer is prohibited from making deductions). Although there was some legal uncertainty about this approach, it did fit with other employers’ accepted practices.

The EAT overturned the decision and allowed the employer’s appeal, in the process laying to rest some of the controversy surrounding the nature of childcare vouchers. The EAT accepted the key question was whether childcare vouchers were ‘remuneration’. In its view, the tribunal had misunderstood the nature of such salary sacrifice schemes. The employer did not provide the vouchers to employees in the scheme as a “perk of the job” in addition to their salary, but out of the salaries they had agreed.

In the EAT’s view, the HMRC guidance was wrong - it couldn’t find any authority for the statement in it that vouchers were non-cash benefits and “must continue to be provided” during maternity leave. It thought Parliament could never have intended employers to continue providing childcare vouchers via a salary sacrifice scheme when there was no salary to sacrifice. So the discrimination claim failed.

Childcare voucher schemes are offered on an entirely voluntary basis by employers. If the EAT had upheld the tribunal’s decision, this would have imposed a cost on employers of continuing to pay for childcare vouchers during unpaid leave, which may have proved a disincentive for providing the benefit.

Employers who have followed the HMRC guidance may now wish to review that approach, certainly for new joiners. However, they should proceed with caution for those employees already in schemes, who may have acquired contractual rights over and above the basic legal obligations clarified by this case.

The decision is also a reminder that the courts are not required to follow government guidance. The EAT commented that it was the “actual law” that needed to be considered, not “some unknown official’s interpretation of it” which it thought was “not a proper basis for decision making in the courts”. Employers (and their lawyers) need to keep an open mind about taking a different view to that expressed in guidance which has no legal force.

And, although the case provides some welcome certainty (assuming it is not appealed again), its impact is limited. A new government tax-free childcare scheme is expected to come into force in early 2017, which will be run centrally, not by employers, so it will not be possible to use salary sacrifice for it.

Katy Meves, Professional Support Lawyer with Shoosmiths LLP

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