BONUSES & MATERNITY LEAVE
The Employment Appeal Tribunal (“EAT”) has confirmed that pro-rating bonuses to reflect periods when a woman is absent on maternity leave does not amount to sex discrimination and is not a pregnancy related detriment.
The first 26 weeks of maternity leave is called “ordinary maternity leave” – OML. During OML, an employee is entitled to receive the benefit of all her terms and conditions of employment with the exception of “remuneration”. The relevant legislation does not define “remuneration” other than to say that it only includes sums that are payable by way of wages or salary.
In the past, employees have taken advantage of the uncertainty surrounding whether bonuses were included in “wages or salary” to argue that bonuses were not either “wages or salary” and should therefore be paid while the employee was absent from work on OML.
What has the EAT decided?
This issue has recently been examined by the EAT in the case of Hoyland v Asda Stores Ltd. Mrs. Hoyland argued that it amounted to either sex discrimination or a pregnancy-related detriment to pro-rate a bonus to reflect time when she had been absent from work on maternity leave.
The purpose of the bonus was to reward employees for their work and continued contribution to the performance of the business during the year. While unrelated to individual productivity, the bonus was paid (through payroll) in recognition of the attendance of employees at work. Absence, for any reason, for more than a specified period during the year resulted in a pro-rata reduction in the amount of the bonus payable.
Earlier case law had indicated that, in certain circumstances, the denial or pro-rating of a bonus to a woman absent on maternity leave might amount to direct sex discrimination.
However, in this case, the Tribunal found that the bonus payments in question were contractual, not discretionary, and formed part of Mrs. Hoyland’s wages. Therefore it amounted to “remuneration” which was not a benefit to which she was entitled during OML.
As a result, the EAT concluded that whilst a worker who takes maternity leave during a bonus year must be paid a bonus in respect of the periods she has worked plus the fortnight of compulsory maternity leave, it is lawful to make a pro rata reduction in respect of the rest of the absence on maternity leave.
What does this mean for employers?
This case means that, with the exception of the two week period of compulsory maternity leave, employers can pro-rate contractual bonuses to reflect periods of absence from work on maternity leave – to do so is not discriminatory.
It is important, however, for employers to note that this case only dealt with the situation where the bonus was based on attendance and not on performance.
If a bonus is based on individual performance, then in order to avoid treating a woman on maternity less favourably than her counterparts, the employer should look at the woman’s performance in the relevant bonus year - and not just pro-rate as a matter of course.
It is, of course, likely that if a woman is only at work for six months of the bonus year she will produce approximately half the revenue of her colleagues who are there for the whole of the year. In this case, it may be that the amount of bonus paid is very similar to what would have been paid if the employer had simply pro-rated. However, the employer should at least consider the possibility that, during the six months she was there, the woman was more profitable than her colleagues. If so, pro-rating would clearly be inappropriate.
Therefore, while the end result may be something that looks very similar to a pro-rated sum, Tribunals will want the employer to be able to show that it at least thought “out of the box”.