In our Newsletter of 9 April 2004, we reported the decision of the European Court of Justice (ECJ) in the case Alabaster -v- Woolwich plc and the Secretary of State for Social Security. The ECJ ruled that the UK government had incorrectly applied the ruling of the earlier Gillespie case by requiring only that a woman's Statutory Maternity Pay (SMP)should be recalculated if a later pay rise took affect in or before the period in which her "reference pay" was determined, i.e. the eight week period preceding the qualifying week.

The ECJ stated that, to avoid discrimination, "a woman who is still linked to her employer by a contract of employment or by an employment relationship during maternity leave must, like any other worker, benefit from any pay rise, even if back-dated, which is awarded between the beginning of the period covered by reference pay and the end of maternity leave".

Consequently, the correct application of Gillespie requires that "any pay rise awarded between the beginning of the period covered by the reference pay and the end of the maternity leave must be included in the elements of pay taken into account in calculating the amount of such pay".

The ruling of the ECJ means that the UK government has to make changes to the provisions of the Statutory Maternity Pay (General) Regulations 1986, regulation 21(7), which currently states: "In any case where a woman receives a back-dated pay increase which includes a sum in respect of a relevant period, normal weekly earnings shall be calculated as if such a sum was paid in that relevant period even though received after that period."

The Department for Work and Pensions, the government department responsible for the maternity legislation, has issued a briefing paper on the subject to the Institute of Payroll and Pensions Management (IPPM) which has, in turn, been circulated to IPPM members in the past week.

As well as summarising the issues arising from the ECJ decision and confirming that the government will amend the Regulations in order to comply from 6 April 2005, the briefing paper states that "employers will have to re-calculate SMP entitlement or potential entitlement. They would do this by applying a pay rise to earnings paid in the "relevant period" if the effective date of that pay rise falls anywhere between the start of that "relevant period" and the end of her maternity leave".

Surprisingly, however, the briefing paper interprets the Alabaster ruling in two unexpected and controversial ways.

1. The meaning of "maternity leave" is applied at meaning the full period of ordinary and additional maternity, i.e. both the paid and unpaid period of maternity leave. This means that a pay rise that takes effect during additional leave must also be applied by recalculating the rate at which SMP is paid during the maternity pay period.
   
   
2. The recalculated rate of SMP must be paid for the full maternity pay period, even if the pay rise takes effect after the maternity pay period starts. As a result, a woman in this situation would receive the benefit of her pay rise before her colleagues.

In making these points, the briefing paper states that "the Government's legal advice is quite clear that this is a consequence of properly applying the terms of the ECJ's judgment". However, instead of resolving the potential discrimination issues for a pregnant woman, these proposals create new discrimination issues for the woman's colleagues at work who only receive the benefit of the pay rise from its correct implementation date.

There are many other implications of these changes:

• The period of time during which a woman's rate of SMP would have to be reviewed and increased if appropriate could be up to 17 months i.e. the 8 weeks before the qualifying week, the up to 15 weeks between the qualifying week and the start of maternity leave, and the up to 52 weeks of ordinary and additional leave.
  
  
• During the up to 17-month period, there could be two pay rises, each of which would prompt a review of the SMP rate.
  
  
• Some women may not initially qualify for SMP but, as a result of a pay rise, may later qualify. This situation exists already under the existing back-dating rules.
  
  
• Women who have received SMP prior to the new rules taking effect in April 2005 will be entitled to ask their employers to review the payments they received and make additional payments if appropriate. Such additional payments would be recoverable in the normal way. The government is taking further legal advice on how far back such recalculations should go.
  
  
• Employers with contractual maternity pay schemes will have to consider the implications of the Alabaster ruling to those schemes.

We will provide further information about these issues as they become available.

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