The Claimant, a pregnant employee, declined to accept a term of the Respondent's salary sacrifice scheme which suspended the allocation of childcare vouchers during periods of maternity leave, on the basis that the term was discriminatory. Her complaint was upheld by the Tribunal, which ruled that, under the Maternity and Parental Leave Regulations 1999 ("the Regulations") and by express reference to HMRC guidance ("the Guidance"), the Claimant was entitled to expect non-pay benefits to continue throughout the duration of ordinary and additional maternity leave. Following the Guidance, the Tribunal ruled that the Respondent was obliged to pay the cost of childcare vouchers itself, in circumstances where the Claimant was not entitled to any contractual enhancement over and above her SMP (from which no deduction could be made). It concluded that the Respondent's failure to continue this benefit throughout the Claimant's maternity leave was discriminatory under sections 18 and 19 of the Equality Act 2010 ("the Act"). The Respondent appealed on the grounds that the Tribunal had erred in its application of section 19 of the Act and had further erred in basing its decision on the Guidance which, according to the Respondent, was itself erroneous and had wrongly interpreted the relevant statutory provisions. Properly analysed, the provision of childcare vouchers under a salary sacrifice scheme was within the meaning of "remuneration" under the Regulations and could therefore legitimately be discontinued during maternity leave (in accordance with the provisions of Regulation 9).

The EAT allowed the appeal and substituted a decision that the claim should be dismissed. No legislative basis could be identified to support the conclusions of the Guidance. The term 'salary sacrifice' was a misnomer: on proper analysis, it might more accurately be termed a 'salary diversion', by which salary might be diverted from an employee's pay packet to the voucher provider. So analysed, the childcare vouchers provided under the Respondent's salary sacrifice scheme properly constituted "remuneration" and could therefore legitimately be discontinued during the Claimant's maternity leave. Moreover, the EAT concluded that it had never been Parliament's intention to grant an additional "windfall" payment to employees on maternity leave and such an approach risked undermining the future adoption of such schemes by employers.

Tim Crane, Employment Law Solicitor

____________

Appeal No. UKEAT/0249/15/DM

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8AE

At the Tribunal

On 22 January 2016

Judgment handed down on 9 March 2016

Before

THE HONOURABLE MR JUSTICE LANGSTAFF

MR D J JENKINS OBE

MR M WORTHINGTON

PENINSULA BUSINESS SERVICES LTD (APPELLANT)

DONALDSON (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR JOHN SAMSON (of Counsel)
and
MS ANNA LINTNER (of Counsel)
Instructed by:
Peninsula Business Services Ltd
The Peninsula
Victoria Place
Manchester
M4 4FB

For the Respondent
MS DONALDSON
(Litigant in person, by written submissions)

MATERNITY RIGHTS AND PARENTAL LEAVE

MATERNITY RIGHTS AND PARENTAL LEAVE - Sex discrimination

A pregnant employee refused to enter a salary sacrifice scheme operated by the Respondent under which childcare vouchers were provided because its terms required her to agree that during periods of maternity leave the entitlement to vouchers for which salary would be sacrificed would be suspended. An ET held that it was discriminatory to offer such terms, on the ground of sex (s.19 Equality Act), under s.18 Equality Act (unfavourable treatment because of asserting a right to maternity leave) and under reg. 9 Maternity Regulations 1999. It was argued on appeal 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 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 Guidance which was erroneous; properly analysed, a salary sacrifice scheme was a diversion of salary from the pay-packet to the voucher provider, and the it had misunderstood the essential nature of the scheme. Moreover, 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 (the employees of the Respondent were entitled to statutory maternity pay only, which could not be diverted for that purpose). The appeal was allowed.

1. This appeal, from a decision from an Employment Tribunal at Manchester (Employment Judge Slater, Mrs Linney and Mr Haydock) of 30th March 2015 raises issues in respect of the relationship between "salary sacrifice schemes" and both Sections 18 and 19 of the Equality Act 2010 and the Maternity and Parental Leave Regulations 1999.

1. The Tribunal, though rejecting a complaint that the Claimant had been discriminated against by the employer's failure to notify her of a job vacancy contrary to Section 18 of the Equality Act, and that she had thereby suffered a detriment contrary to Section 47C of the Employment Rights Act 1996, upheld complaints of discrimination and detriment under the same provisions in respect of the Respondent's refusal to allow the Claimant to participate in a Childcare Voucher Scheme. It also upheld a complaint that by refusing admission to the Scheme (unless she accepted its terms, which she was not prepared to do) there had been indirect discrimination on the ground of sex against her. The scheme was a "salary sacrifice" scheme – in other words, it was not provided by her employer as a perk of the job in addition to regular salary but, rather, the vouchers were paid for by employees who had been admitted to the scheme out of the salaries they had agreed, the payment being made by the employer before accounting to employees within the scheme for the balance.

1. It is unnecessary to set out the detail of the Claimant's employment, save to say that her terms and conditions of employment provided for her to receive statutory maternity pay only during maternity leave. There was no contractual enhancement.

1. The employer operated a scheme which was described by the Tribunal in paragraph 9 in these terms:

"In return for agreeing to a lower basic salary, the employee receives childcare vouchers to the value of the salary sacrifice, which is subject to a limit in accordance with tax regulations. The benefit to the employee, when at work and participating in the scheme, is a saving in tax and National Insurance contributions on the amount of the vouchers."

The interaction of that scheme and the entitlement of an employee to maternity leave was described in the paragraph immediately following:-

"If someone who is a member of a childcare voucher scheme goes on maternity leave, they are entitled to continue to receive childcare vouchers during their maternity leave. No deduction can be made from statutory maternity pay so the employer is obliged to pay the cost of the childcare vouchers if the woman is only receiving statutory maternity pay. HMRC guidance states that an employee may agree to withdraw from the Childcare Voucher Scheme which they might decide to do so as to have statutory maternity pay calculated on normal rather than reduced pay. If the employee does not wish to withdraw from the scheme, the employer cannot require her to do so."

1. By the time the Claimant wished to enter the employer's scheme, she was pregnant. The employer knew this. By that time, it was a pre-condition for admission to the Childcare Voucher Scheme that the employee should accept the terms of the scheme which included a clause which provided:-

"During periods of time spent on maternity leave, paternity leave, additional paternity leave, parental leave, periods of sick leave during which the only payment payable to the employee is statutory sick pay and any other unpaid leave, provision of childcare vouchers and adjusted monthly salary will be suspended and salary payments will revert to normal i.e. the pre-variation position. During the voucher suspension period the employee will remain in the scheme."

1. The Claimant would not join the scheme on those terms, believing it was discriminatory.

1. The Tribunal's decision in respect of the childcare voucher complaint under Section 18 of the Equality Act 2010, at Section 47C of the Employment Rights Act 1996 is set out from paragraphs 51 to 58. The material parts of it are as follows:

"51. The Respondent refused to allow the Claimant to join the Childcare Voucher Scheme unless she agreed that she would cease to be a member when on maternity leave. The Respondent was, therefore, refusing to allow her to be a member when on maternity leave.

52. Women on maternity leave are entitled to non-pay benefits during ordinary and additional maternity leave, whether or not the benefits are contractual, in accordance with the Maternity and Parental Leave Regulations 1999.

53. We consider it would be unlawful discrimination contrary to Section 18 of the Equality Act 2010 to stop a benefit during maternity leave without the employee's agreement. We consider it must follow that it is unlawful discrimination to require that agreement as a pre-requisite to joining a scheme which otherwise bestows that benefit.

54. We conclude that the Respondent subjected the Claimant to unfavourable treatment by imposing a term that she could not be a member of the Childcare Voucher Scheme during maternity leave, as a condition of joining the scheme.

55. We conclude that the reason for this unfavourable treatment was because she was seeking to exercise her right to ordinary or additional maternity leave…

56. We conclude that the Claimant suffered a detriment because of this unfavourable treatment. She was unable to join the scheme and receive vouchers before and during her maternity leave.

57. We, therefore, conclude that the complaint of discrimination under Section 18 of the Equality Act 2010 in relation to access to the Childcare Voucher Scheme is well founded.

58. We also conclude that the complaint of detriment under Section 47C of the Employment Rights Act 1996 is well founded. We find that the Claimant was subjected to a detriment for the reason that she sought to take or avail herself of the benefits of ordinary maternity leave or additional maternity leave."

From paragraphs 59 – 63 it dealt with the complaint of indirect sex discrimination, in respect of the policy of the Respondent as set out in Clause 3 of its Childcare Voucher Scheme. It thought that that provision put women at a particular disadvantage when compared to men. There could be no justification for this since the reasons advanced by the employer for including Clause 3 in the scheme were purely financial, and cost alone could not provide objective justification: see Cross v British Airways plc 2005 IRLR 423 (UKEAT/572/04) (23 March 2005). Accordingly, the complaint under section 19 succeeded.

1. Neither the Claimant, who appeared in person before the Employment Tribunal, nor the consultant, who appeared for the Appellant, was before us. The Claimant wrote shortly prior to the hearing to ask us to excuse her non-attendance, and to take into account her written submissions. We have done so.

1. Mr Samson and Ms Lintner appeared for Peninsula. Mr Samson was scrupulous to ensure both that in the absence of the Claimant her points were put and that we had before us any legal authority of which he knew which might assist her case.

1. Perhaps because of the lack of professional representation below, the Employment Tribunal was not taken to the statute and regulations which provide for the taxation arrangements which enable "salary sacrifice schemes" to benefit employees by ensuring that the amount of their salary spent on certain benefits is not then to be taxed as part of their general income. During the lunch adjournment in the course of the hearing before us, Mr Samson and Ms Lintner obtained copies of the Income Tax (Earnings and Pension) Act 2003 ("ITEPA") which provides in Chapter 4 for the taxation of vouchers and "credit-tokens". Section 96 of the Act provides for dispensations.

1. Under those provisions, a childcare voucher is a "non-cash voucher" (Section 84(1)(a)(b) of the Act). Its benefit would normally be treated as earnings (Section 87), but it is plain that Chapter 4 anticipates that there may be situations in which, under section 96 or otherwise, dispensation from tax is given.

1. Since the HMRC Guidance (to which the Tribunal was referred) appeared to indicate that there were prescribed limits within which such a scheme might operate, we wished to make sure that we had been referred to all the legislation that might reasonably be discoverable. Accordingly, we invited counsel to conduct further research after the conclusion of oral argument, to see what might have been missed at first pass. As a side comment, we do not blame counsel for not having all the material available for the hearing itself. Neither is expert in tax law. It is unfortunate that the Guidance – in common, it appears, with the most obviously relevant web-sites - simply does not contain any easily accessible link to the applicable legislation to alert the occasional practitioner to the actual law (rather than some unknown official's interpretation of it, supposedly in clear if cosy, and therefore perhaps over-simplistic, language, which is not a proper basis for decision making in the courts). Someone who is a lay litigant, as is the Claimant here, is in an even more difficult position when trying to gain access to primary material. It is worth making specific reference to the problem, because it is replicated in other areas of law relevant to appeals before the EAT (especially where out-of-date provisions are posted, or alternatively where it is very difficult to find the legal provisions applicable to relevant conduct at the time it occurred, because those provisions have since been amended), and the numbers of those appearing before the Appeal Tribunal who are not professionally represented has increased from around 40 to some 60% over the last six years, such that it represents a growing problem in achieving justice.

1. Counsel dutifully submitted a note. We had asked them to identify the legislative basis, if any, for the assertion made in 2014 Guidance published by HMRC entitled "Statutory Maternity Leave – salary sacrifice and non-cash benefits" that during any period of ordinary maternity leave contractual non-cash benefits provided under a salary sacrifice scheme in lieu of sacrificed salary "must continue to be provided"; and the legislative basis for the income tax exemption for childcare vouchers provided under the Appellant's salary sacrifice childcare voucher scheme. They were unable to point to any legislative provision that supported the phrase "must continue to be provided" (we should add, unless it is either regulation 9 of the Maternity and Parental Leave Regulations 1999 or the effect of s.19 of the Equality Act 2010, to both of which we come below). They did however throw some further light on the legislation relevant to salary sacrifice schemes. We remain cautious that we may not have identified all the provisions which might be relevant, and any future litigant reading this judgment must bear in mind that we therefore express the conclusions to which we have come somewhat tentatively.

1. Tax may not be charged unless it comes from a taxable source. Earnings are specifically made taxable; as are childcare vouchers (see paragraphs 10 and 11 above). However, a limited exemption from tax up to the level of "the exempt amount" is provided for "qualifying childcare vouchers" under s. 270A of ITEPA. A voucher qualifies if it meets four conditions set out at s.270A (3) – (5C). Of those, that material to the present case is "Condition C", which is set out in sub-section (5) as follows:

"(5) Condition C is that the vouchers are provided under a scheme that is open—

(a) to the employer's employees generally, or

(b) generally to those at a particular location."

1. The "exempt amount" is defined by sub-section (6), with further definitions of the terms which sub-section (6) uses at (6ZA) and (6A) as follows:

"(6) For the purposes of this section the "exempt amount", in any tax year, is the sum of—

(a) the appropriate amount for each qualifying week in that year,

and

(b) the voucher administration costs for that year.

(6ZA) In subsection (6)(a) "the appropriate amount", in the case of an employee, means—

(a) if the relevant earnings amount in the case of the employee for the tax year, as estimated in accordance with subsection (5C), exceeds the higher rate limit for the tax year, £25,

(b) if the relevant earnings amount in the case of the employee for the tax year, as so estimated, exceeds the basic rate limit for the tax year but does not exceed the higher rate limit for the tax year, £28, and

(c) otherwise, £55."

(6A) The "voucher administration costs" for any tax year in respect of which qualifying childcare vouchers are provided for an employee means the difference between the cost of provision of the vouchers and their face value.

The face value of a voucher is the amount stated on or recorded in the voucher as the value of the provision of care for a child that may be obtained by using it.

(7) A "qualifying week" means a tax week in respect of which a qualifying childcare voucher is received."

1. s. 270A(5A) and (5B) contain further provisions of potential relevance:

"(5A) Where the scheme under which the vouchers are provided involves—

(a) relevant salary sacrifice arrangements, …..

Condition C is not prevented from being met by reason only that the scheme is not open to relevant low-paid employees.

(5B) In subsection (5A)—

"relevant salary sacrifice arrangements" means arrangements (whenever made) under which the employees for whom the vouchers are provided give up the right to receive an amount of general earnings or specific employment income in return for the provision of the vouchers;….."

1. We note that where childcare vouchers are not provided by an employer, but childcare itself is, then similar provisions apply where the care is paid for directly under a salary sacrifice scheme – see s. 318A ITEPA.

1. HMRC has issued documentary summaries of the tax position in EIM16050-16059, but these do not touch directly on the issues we have to decide, though they make reference to the relevant statutory provisions.

1. We have also come across the helpful publication "Maternity Rights Law" (3rd. ed.) by John M. Wright, which directs the reader at page 164 that there has been controversy whether the provision of childcare vouchers constituted remuneration, and sets out the advice of the former Department of Business, Enterprise and Regulatory Reform as being that it did not, being a non-cash benefit, such that vouchers must continue to be provided during maternity leave irrespective of any salary sacrifice arrangement.

1. The Tribunal was not referred to, and perhaps understandably did not therefore consider, the statutory provisions relating to child care voucher schemes.

1. Of the provisions on which it did rely, insofar as they are relevant to the determination of this appeal: (1) Section 18 of the Equality Act 2010 provides, under the heading "Pregnancy and maternity discrimination: work cases" :

"(1)This section has effect for the purposes of the application of Part 5 (work) to the protected characteristic of pregnancy and maternity.

(2)A person (A) discriminates against a woman if, in the protected period in relation to a pregnancy of hers, A treats her unfavourably —

(a)because of the pregnancy, or

(b)because of illness suffered by her as a result of it.

(3)A person (A) discriminates against a woman if A treats her unfavourably because she is on compulsory maternity leave.

(4)A person (A) discriminates against a woman if A treats her unfavourably because she is exercising or seeking to exercise, or has exercised or sought to exercise, the right to ordinary or additional maternity leave."

(2) Section 19 of the Equality Act 2010 provides, under the hearing "Indirect discrimination":

"(1)A person (A) discriminates against another (B) if A applies to B a provision, criterion or practice which is discriminatory in relation to a relevant protected characteristic of B's.

(2)For the purposes of subsection (1), a provision, criterion or practice is discriminatory in relation to a relevant protected characteristic of B's if—

(a)A applies, or would apply, it to persons with whom B does not share the characteristic,

(b)it puts, or would put, persons with whom B shares the characteristic at a particular disadvantage when compared with persons with whom B does not share it,

(c)it puts, or would put, B at that disadvantage, and

(d)A cannot show it to be a proportionate means of achieving a legitimate aim.

(3)The relevant protected characteristics are—

age; disability; gender reassignment; marriage and civil partnership; race; religion or belief; sex; sexual orientation."

1. It is to be noted that "pregnancy and maternity", though a characteristic protected under the Act (see section 4) is not one of the eight protected characteristics in respect of which a claim of indirect discrimination may be brought. The Tribunal made no specific note of this, but approached the issue as one of sex discrimination. Mr Samson rightly objects that it did not take into account when doing so that what was in issue before it were the terms of the contract under which the Claimant was to be permitted to work. Section 66 of the Equality Act 2010 provides that those terms are deemed to include a "sex equality clause", such that if a term of a female employee's contract is less favourable to her than a corresponding term of the contract of a male employee performing equal work to her, it is to be modified so as not to be less favourable. By section 70, however, neither the inclusion of a less favourable term in the woman's contract, nor a failure to include a term corresponding to that in the contract of a male employee performing equal work, is to be sex discrimination for which a claim may be brought under section 39(2), as must claims for discrimination in work. Nor does it apply to terms of work affording special treatment to women in connection with pregnancy or childbirth (section 70(1)(b), taken with Schedule 7, paragraph 2). Since Section 39(2) prohibits discrimination (including, therefore, discrimination on the ground of sex falling within section 19) as to the employee's terms of employment), the effect of section 70 is to exclude jurisdiction for a Tribunal to consider a claim of indirect discrimination in respect of terms and conditions of work as such (in effect, by providing an alternative, but exclusive, remedy under the equality clause referred to in section 66). Similarly, section 76 excludes any right to sue for breach of a relevant pregnancy and maternity discrimination provision in relation to a term of work which is modified by a maternity equality clause or rule (for the meaning of which see ss. 74 and 75), and then significantly for present purposes adds:

"(1A)The relevant pregnancy and maternity discrimination provision has no effect in relation to a term of the woman's work—

(a) that relates to pay, but

(b) in relation to which a maternity equality clause or rule has no effect.

(2)The inclusion in the woman's terms of a term that requires modification by virtue of section 73(2) or (3) is not pregnancy and maternity discrimination for the purposes of the relevant pregnancy and maternity discrimination provision."

These provisions continue the distinction made in the legislation which preceded the Equality Act 2010 between provisions in respect of terms and conditions of employment (which fell under the Equal Pay Act 1970) on the one hand, and discrimination under section 6 of the Sex Discrimination Act 1975 on the other – the two statutes, though enacted at different dates, came into force together on the 29th. December 1975 as two parts of what was, taken together, a complete code regulating discrimination on the ground of sex in the workplace, but the circumstances in which a claim could be brought under the one did not overlap with those in which one could be brought under the other.

1. Any claims for direct or indirect discrimination as defined by sections 13 and 19 of the Equality Act in respect of the terms and conditions relating to maternity were thus excluded by the combined effect of the provisions in the Equality Act 2010. The Tribunal failed to appreciate this. It was however dealing here with a case that alleged discrimination in relation to the future maternity leave of the claimant. We accept Mr. Samson's submission, supported by this legal analysis, that it had no jurisdiction to consider a complaint of indirect discrimination under section 19. The appeal against its decision that there had been such discrimination thus necessarily succeeds.

1. For the same reasons, we are doubtful that section 18 was applicable here, since the decision was in effect that it was unlawful for the employer to offer a scheme to all employees which provided that childcare vouchers would not be provided during periods of maternity leave. That is a decision which related to terms and conditions of employment as opposed to detrimental acts (other than acts concerning the terms and conditions of employment) committed by an employer in the circumstances prohibited by section 18. Nonetheless, it was not argued by Mr. Samson that section 18 did not apply for that reason, and we have therefore considered the case on the basis that potentially it did, whilst expressing the doubts we do.

1. This leaves the case brought under the provisions of section 18 (if applicable) and that under the Maternity and Parental Leave Regulations 1999. The Regulations were made under section 71 of the Employment Rights Act 1996 which provides, so far as material:

"(4) Subject to section 74, an employee who exercises her right under subsection (1)—

(a) is entitled, for such purposes and to such extent as may be prescribed, to the benefit of the terms and conditions of employment which would have applied if she had not been absent…….

(5) In subsection (4)(a) "terms and conditions of employment"—

(a) include matters connected with an employee's employment whether or not they arise under her contract of employment, but

(b) does not include terms and conditions about remuneration.

(6) The Secretary of State may make regulations specifying matters which are, or are not, to be treated as remuneration for the purposes of this section."

1. Regulation 9 of the 1999 Regulations provides, under the heading "Application of terms and conditions during ordinary maternity leave" as follows:

"9.—(1) An employee who takes ordinary maternity leave—

(a) is entitled, during the period of leave, to the benefit of all of the terms and conditions of employment which would have applied if she had not been absent, and

(b) is bound, during that period, by any obligations arising under those terms and conditions, subject only to the exception in section 71(4)(b) of the 1996 Act.

(2) In paragraph (1)(a), "terms and conditions" has the meaning given by section 71(5) of the 1996 Act, and accordingly does not include terms and conditions about remuneration.

(3) For the purposes of section 71 of the 1996 Act, only sums payable to an employee by way of wages or salary are to be treated as remuneration."

1. It will thus be obvious that the present appeal, so far as it relates to the 1999 Regulations, turns upon whether the scheme provides a "benefit" to which (a) applies, and what comes within the scope of "remuneration", and whether in consequence the Claimant could complain that to require her to enter the scheme only upon her agreement that the provision of childcare vouchers would be suspended during any period of maternity leave was unlawful.

1. Mr Samson argues that the critical question is the proper understanding of a salary sacrifice scheme. He submits that, properly regarded, it is not a scheme by which an employer provides a benefit (vouchers) instead of or in addition to salary: rather, it is a "salary diversion". An employee engaged on terms that provide her only with statutory maternity pay has no salary to "sacrifice" (or in his description "divert") in order to purchase childcare vouchers. A salary sacrifice scheme such as that operated by the Respondent involves it in no contribution in addition to the wage already paid to the Claimant. There was a benefit to both employer and employee: to the employee the benefit was a reduction in the tax otherwise payable, so that an employee with a child requiring care would have a little more money available for day-to-day expenses. For the employer, it provided the benefit of helping to keep valuable employees in work. But the benefit accrued only if the vouchers were first purchased under the scheme, and this could not occur if and while the employee was receiving only statutory maternity pay which could not be used for a salary sacrifice scheme.

1. Mr Samson's submissions assumed that the Claimant had entered into the contract which she had refused. Had she done so, the term as to the suspension of the voucher scheme during periods when the Claimant was receiving statutory maternity pay only, was a provision about remuneration. It related directly to the sum payable to the Claimant by way of salary. Regulation 9 is expressly subject to Section 71(5) and 73(5) of the 1996 Act, and accordingly does not apply to terms and conditions about "remuneration". That was exactly what the offending clause here was concerned with, submitted Mr Samson. He accepted that Regulation 9(3) limits the scope of that which is to be regarded as remuneration: "only sums payable to an employee by way of wages or salary" are such. This requires concentration on what it is that constitutes "wages". He submitted that the flavour of the word "wages" is given by Section 27 of the Employment Rights Act 1996, which defines it. The reference to "sums payable… by way of wages" is not apt to include a voucher, but is capable of including the sum with which such a voucher is purchased. When an employer pays such a sum to the provider of childcare vouchers, that sum is part of the salary of the employee for whom and with which the voucher is then purchased. There are no circumstances under which the employer itself provides the voucher: its role is to direct money which would otherwise have gone into the employee's pay packet into the hands of the voucher provider, such that the Claimant benefits. There is no "sacrifice" of salary – rather, the employee is not giving something up, but obtaining a financial benefit by purchasing what would in any event be a necessity for (in effect) a lower cost. If it were necessary to do so, a childcare voucher would fall within the definition of "wages" in Section 27(5) which provides that the monetary value attached to a payment or benefit in kind furnished to a worker by an employer is not to be treated as wages:

"…except in the case of any voucher… which is –

(a) of a fixed value expressed in monetary terms, and

(b) capable of being exchanged… for… goods or services"

1. Although the salary paid each month is reduced to reflect the amount which is paid to purchase childcare vouchers, the pension entitlements of someone within the scheme offered to the Claimant are to be calculated on the unadjusted salary.

1. The benefit of the scheme is not in the provision of vouchers as such, since the net value received by an employee in receipt of adjusted monthly salary, pension and childcare vouchers is the same as that of her unadjusted or "original" salary. The benefit to the employee is the payment of less tax upon the salary she does receive. When in receipt of statutory maternity pay, she is no longer accountable to the revenue for tax upon the money received. This is a natural consequence of the reduction in salary level for which the statutes and regulations permit. In a case such as the present there therefore would be no benefit by a reduction in tax.

1. Though the HMRC Guidance suggests that the receipt of childcare vouchers should be continued during maternity leave this has no legislative force. The only basis for it which Counsel could uncover is that in the 1999 Regulations. Upon a proper interpretation of the application of those Regulations, the Guidance was in error, for provisions as to remuneration were to be excluded, and the benefit in the present case was not one provided over and above the amount of unadjusted normal remuneration.

1. Insofar as the claim under section 18 was concerned, the Employment Tribunal was incorrect to find that it was a condition of entry into the scheme that the Claimant could not be a member of it whilst on maternity leave – the provision was that she would remain a member of the scheme but the provision of vouchers would be suspended during that period. Rather than subject the Claimant to unfavourable treatment by the loss of a benefit, the effect of the judgment was to compel the employer to treat employees more favourably than any other class of person employed by the Respondent.

1. We do not accept Mr Samson's argument that Section 27 of the Wages Act is of great assistance. The definition is specifically applicable to the Part of the Act in which section 27 falls. It cannot therefore be easily translated to a different Act (The Equality Act 2010) nor to sections in a different part of the same Act which relate to entitlement on maternity. Accordingly, the question whether the benefit of a voucher paid for by "salary sacrifice" is part of remuneration, and hence excluded from the scope of regulation 9 of the Maternity Regulations cannot be resolved as easily as he would argue. Nonetheless, we have been persuaded that it is.

1. The assistance of Lay Members who both have a particular familiarity with salary sacrifice schemes has been invaluable. They point out that there are many cases in which an employer will provide vouchers as a benefit additional to salary. In such cases, Regulation 9 of the 1999 Regulations requires that vouchers continue to be supplied during maternity leave. It does not matter that the employee concerned may be said not have the same need to pay for childcare during the period of maternity leave, since she is likely to be readily available to provide some care for her other children, if any, as well as her baby, at the time: if she does not use them during and shortly after childbirth, there is nothing to prevent such vouchers being kept for later use.

1. The situation is different where the scheme is a "salary sacrifice" scheme. Though the phrase is in common use, and is referred to by that colloquial description in the legislation, as we have set out at the start of this judgment it is something of a misnomer. It is in reality not a sacrifice but a diversion of salary, which the employee has earned but which is redirected prior to it being placed within the employee's pay packet, in order to purchase vouchers to the value of the salary utilised.

1. This view is critical. It means that we accept that the voucher is properly to be regarded as part of remuneration. The fact that it is deemed to be a "non-cash benefit" by the taxing statutes for the purposes of personal taxation does not deprive it of this character. The question is factual, and not to be determined by labels adopted for other purposes. The sum by which the voucher is purchased is that which is payable to the employee: for the purpose of the purchase it is diverted. If the consequence were not beneficial tax treatment, the position would be obvious: if an employee invited an employer to make a direct payment on her behalf, and to deduct the sum paid from his monthly salary, no one would suggest that the payment was anything other than part of her remuneration. If it were used to purchase goods, it would not be regarded as arranging for a payment in kind (i.e. those goods) to be made by employer to her.

1. The consequence of holding otherwise produces consequences which we do not think could have been contemplated in the legislature. The law takes steps to permit the payment of lower sums by way of salary to those on maternity leave. It is not discrimination, nor contrary to the 1999 Regulations, to do so. The employee receiving a salary without entering a sacrifice scheme is not entitled by law to receive any more than legislation requires as a minimum. 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. The tax benefit disappears: but this is a benefit which only applies as a consequence of being in receipt of the higher salary to which the Claimant is not longer entitled.

1. The Lay Members point out that to require the continued provision of vouchers during maternity leave both produces a windfall benefit for a Claimant who is in such a scheme but also - more importantly - imposes a cost upon the employer. The policy behind the provision of childcare vouchers through a salary sacrifice recognised in the taxing statutes as entitling the maker of it to favourable tax treatment is to enable more women with young children to remain in or return to the workplace. This is a real benefit economically to the employer, who then has a wider range of skilled and valuable workers from which to choose, as well as a real benefit to employees by alleviating to some extent the costs of remaining in work. It incentivises women to remain at work; and therefore is overall of economic benefit to the country. But the scheme is entirely voluntary on the employer's part. 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 is particularly acute where small and medium enterprises are concerned. Both Lay Members, from their different perspectives, regard such a consequence as very damaging to a valuable policy. We do not think that Parliament can have intended this consequence.

1. Accordingly, since we regard the scheme factually as being one of diversion, not "sacrifice", of salary; that, properly so analysed, it constitutes remuneration and not a benefit beyond wages and salary; that the opposite construction would grant the employee a windfall, and the consequences of such an interpretation would seriously damage the entry of employers into a scheme which would otherwise be of benefit to them and their employees; and that the construction Mr Samson advances better fulfils the legislative policy apparently underlying the tax benefits, we have concluded that Mr Samson is right in his submissions generally.

1. In any event, the Claimant in this particular case refused to enter into such a scheme. That was her choice. Her complaint was not, therefore, that when she took maternity leave she was not paid that to which she was entitled. She did receive that to which she was contractually entitled, and that which statute provided. We think the Tribunal was in error of law not to focus in some detail upon the question whether it was unlawful of the employer to propose a scheme such as it did, and that insofar as it considered the question to attempt to answer it without asking whether there were any statutory provisions which meant that to offer a contract in the terms it was offered to the Claimant was unlawful. We have seen no statutory provision that would make it so.

1. It follows that since the Claimant never entered the scheme, and the terms of the scheme are not rendered unlawful by any contractual provision of which we have been made aware, Regulation 9 would be entirely satisfied in the present case: the Claimant had the benefit of all the terms and conditions of employment which applied if she had not been absent (except, that is, for the reduction in pay which comes with maternity leave – but that is specifically permitted by the legislation).

1. We do not think that making the offer to the Claimant of entering into this scheme on the terms proposed constituted unfavourable treatment within Section 18. That section provides as follows, under the heading "Pregnancy and maternity discrimination: work cases"

"18(1) This section has effect for the purposes of the application of Part 5 (work) to the protected characteristic of pregnancy and maternity.

(2) A person (A) discriminates against a woman if, in the protected period in relation to a pregnancy of hers, A treats her unfavourably—

(a) because of the pregnancy, or

(b) because of illness suffered by her as a result of it.

(3) A person (A) discriminates against a woman if A treats her unfavourably because she is on compulsory maternity leave.

(4) A person (A) discriminates against a woman if A treats her unfavourably because she is exercising or seeking to exercise, or has exercised or sought to exercise, the right to ordinary or additional maternity leave.

(5) For the purposes of subsection (2), if the treatment of a woman is in implementation of a decision taken in the protected period, the treatment is to be regarded as occurring in that period (even if the implementation is not until after the end of that period).

(6) The protected period, in relation to a woman's pregnancy, begins when the pregnancy begins, and ends—

(a) if she has the right to ordinary and additional maternity leave, at the end of the additional maternity leave period or (if earlier) when she returns to work after the pregnancy;

(b) if she does not have that right, at the end of the period of 2 weeks beginning with the end of the pregnancy.

(7) Section 13, so far as relating to sex discrimination, does not apply to treatment of a woman in so far as—

(a) it is in the protected period in relation to her and is for a reason mentioned in paragraph (a) or (b) of subsection (2), or

(b) it is for a reason mentioned in subsection (3) or (4)."

1. Assuming, without deciding, that a claim under this section escapes the same reasoning as precludes a claim under section 19 (see paragraph 24 above, and the paragraphs immediately preceding it), the conclusion that making the offer to the Claimant of entering into this scheme on the terms proposed did not constitute unfavourable treatment follows from our analysis of the scheme had it been applicable to the Claimant.

1. We have considerable sympathy for the Tribunal, since it was referred to only some of the applicable statutory material. We have had the advantage of much more, even if we remain apprehensive that we may not have been referred to all the provisions that might be relevant despite the considerable efforts of counsel; and we have had the advantage of the submissions of Mr Samson and Ms Lintner. Nonetheless, we consider it erred in its conclusion at paragraph 53 of its judgment; it 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; it reached a doubtful conclusion at paragraph 55 in any event (it is not immediately obvious why the cause of the Claimant's refusal to join the scheme on its terms was because she was seeking to exercise her right to ordinary or additional maternity leave); and it erred in thinking that either section 18 or 19 of the Equality Act was applicable, for the reasons we have set out above.

1. Accordingly, we allow the appeal, and reverse the decision of the Employment Tribunal. We substitute a decision that the claim must be dismissed.