Ruling leads to changes in SMP pay rise awards

Michelle Alabaster’s lengthy, high-profile case against the Woolwich – now part of Barclays – ended in success last week.

Supported by the Equal Opportunities Commission, her claim that the building society owed her an additional £204.53 in maternity pay has led to changes to the statutory maternity pay (SMP) regime.

The first six weeks of SMP is paid at 90% of the woman’s average earnings. The entire 26 weeks’ SMP may also be calculated by reference to average earnings if the employee is a low earner.

Average earnings are calculated according to the employee’s earnings actually paid (including any back-dated pay rise) during the ‘relevant period’. This is the eight-week period ending with the last normal pay day before the end of the 15th week before the expected week of childbirth.

Even though the Woolwich paid Alabaster in accordance with the SMP regulations at the time, she claimed that her SMP should have taken account of a pay rise awarded after the relevant period, but before she went on maternity leave.

Her claim went all the way to the European Court of Justice (ECJ), which found that the regulations failed properly to implement EU law.

The regulations were therefore amended last month. Under the new rules, an employer must recalculate the SMP due if there is any pay rise during not only the relevant period, but also between the end of the relevant period, and the end of maternity leave (ordinary maternity leave or additional maternity leave – but not any longer period of contractual maternity leave).

An employee is now treated as if the higher earnings applied for the whole of the relevant period and so the employer is required to recalculate the SMP and pay the additional sum due.

The Court of Appeal reconsidered the position in light of the ECJ’s views, and decided that Alabaster could bring a claim under the Equal Pay Act 1970 for the £204.53.

It said that in these circumstances, Alabaster did not need to show that she had been treated differently to a male comparator.

Awarding pay rises

If you award a pay rise now, first check the effect it would have on any employees currently on maternity leave. In the event of a pay rise that is awarded now but is also backdated, you may also need to recalculate payments to any employees who were on maternity leave on the effective date for the pay rise, even if they have since returned. You must also take account of pay rises that have been awarded, but have not yet started to be paid, as the rules do not distinguish between the two.

In most cases, the recalculation will mean only a very small additional payment to the employee.

You do not have to recalculate SMP you have paid in the past that did not take a pay rise into account, but you may be vulnerable to claims if you don’t. An equal pay claim can relate to SMP paid over the previous six years, provided it is brought while the employee is still employed, or within six months of the employment ending.

Practical steps

The media and trade unions have followed this case throughout, and so affected employees are likely to be aware of their rights.

Therefore, ensure your internal procedures will now trigger a recalculation of SMP for relevant employees where pay rises are awarded. If you think that a number of employees might be affected, you may wish to carry out a risk assessment to identify them and how much they are owed.

Bear in mind that, subject to the usual rules, you may be able to reclaim any additional payments you have to make from the Inland Revenue.
Consider whether you need to take any proactive steps in light of this assessment. In most organisations, the number of staff affected will be small.

Employees should not be able to bring a tribunal claim until they have raised a grievance under the new statutory dispute resolution procedures. This should enable most claims to be dealt with before they reach a tribunal.

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