Despite what some employers may think, employees on maternity leave can still be dismissed or made redundant in genuine redundancy situations. Where an individual’s employment terminates, their statutory maternity leave would come to an end. The employer would however retain liability for any remaining statutory maternity pay (“SMP”). This is because once an employee has qualified for SMP they are entitled to receive payment whether their employment terminates or not.
In the case of NVCS Limited v (1) Commissioners for HMRC and (2) Dare the First Tier Tax Tribunal had to consider whether NVCS could get Mrs. Dare to waive her entitlement to SMP under the terms of a “full and final” settlement without clearly identifying the sums they were paying in respect of her SMP.
Facts of the case
Mrs. Dare worked for NVCS. She commenced employment in February 2016 and in July 2016 she notified the company that she was pregnant and that she would be taking maternity leave. Shortly after this a dispute arose regarding her performance. There followed a period of negotiations with ACAS which resulted in an agreed settlement. Under the terms of the settlement Mrs. Dare received £10,000 in “full and final settlement of all claims” against NVCS. Having received the monies Mrs. Dare contacted NVCS requesting payment of her SMP. NVCS refused on the basis they argued her SMP entitlement of approximately £8,000 had been included in the £10,000 global settlement figure. Mrs. Dare complained to HMRC who launched an investigation. HMRC concluded that the SMP had been accounted for and paid. Mrs. Dare appealed to the Tax Tribunal.
Decision of tax tribunal
The Tribunal made it clear that SMP is a statutory right and as such it is not possible to exclude or limit an employees’ entitlement to SMP. As such, if an employer wants to include claims for SMP in any settlement agreement they must actually pay the correct amount of SMP to the individual. In Mrs. Dare’s case NVCS should have clearly stated in the agreement the sum Mrs. Dare was receiving in lieu of her SMP i.e. £8,000. Its failure to do so meant it was on the hook for an additional £8,000 on top of the £10,000 it had already paid.
Important points to remember
If you are negotiating a settlement agreement with someone who has qualified for SMP you have two options:
- Confirm in the agreement that you will continue to pay SMP on a weekly or monthly basis until the SMP period ends or the individual commences new employment or ceases to qualify for SMP; or
- Set out clearly the outstanding SMP entitlement and confirm that this will be paid as a lump sum.
There are advantages and disadvantages to both options but employers should be mindful of the fact that if they make a lump sum payment they could end up overpaying if something changes during the SMP period disqualifying that individual from SMP. Whichever option an employer chooses however, they are ultimately responsible for demonstrating that SMP has been paid in full.