Holiday pay revisited in important Supreme Court decision
We have been reporting on the vexed issue of holiday pay since the Bear Scotland decision in 2014. This decision had a significant impact on employers across the country, deciding that when a worker takes a week’s annual leave, their pay for that week must include an element of overtime pay, if worked regularly, and any other payments usually received. Workers who had not received the correct holiday pay could bring a claim in the employment tribunal.
One controversial aspect of the decision was the finding that if, for any particular employee, at any time a period of 3 months passed in which there were no underpayments of holiday pay, this would break the “series of deductions” and the older underpayments could no longer be reclaimed by the worker. This materially reduced the value of many workers’ claims.
Workers’ ability to make a claim for historic underpayments of holiday pay was also affected when the government legislated to restrict any claims for unlawful deductions from wages to a period of 2 years prior to the date of the claim.
PSNI Case
The Supreme Court has just issued its long awaited decision in the case of Chief Constable of Police Service of Northern Ireland v Agnew. The Supreme Court ruled that workers can claim for historic underpayments of holiday pay even where there are gaps of over three months between deductions.
The Claimants in this case were police officers and other civilian staff employed by the Police Service in Northern Ireland. They brought claims for underpayment of holiday pay as they had only been receiving basic pay during periods of annual leave. The parties agreed that compulsory overtime should have been taken into account when holiday pay was calculated, but the case concerned the “3 month rule” and whether that was a barrier to the Claimants obtaining payment of these sums.
The provisions of the Employment Rights Act 1996 (which is mirrored in the relevant Northern Irish legislation) provides that claims be brought within 3 months of a specific deduction, or within 3 months of the last of a series of linked deductions.
The Supreme Court disagreed with the decision in Bear Scotland and held that if there is a series of linked deductions, the fact that during that series, there is a period of 3 months where no underpayments were made, is neither here nor there. The “gap” does not break the series of deductions and as long as the claim is brought within 3 months of the final deduction, all deductions in the series can be claimed.
It will depend on the facts of that particular case as to whether a number of deductions are “linked” so as to form a “series”. The court would examine their similarities, frequency and impact among other factors, but whether the deductions are more or less than three months apart is no longer a relevant consideration to whether there is a series of linked deductions.
Implications
The impact of this judgment is mitigated in Great Britain by the two year backstop, mentioned above, in respect of claims for unlawful deductions from wages under the Employment Rights Act 1996. Claimants cannot claim for unlawful deductions which occurred more than 2 years before raising the claim, even if part of a series of linked deductions.
In Northern Ireland, the two year limit does not apply and as such, this judgment confirms that in Northern Ireland, holiday claims may now go back as far as an employee’s period of continuous employment. Should there be any successful challenge to the 2 year rule in Great Britain, employers here could face similar substantial claims without limit of time. This decision underscores the importance of correctly calculating holiday pay, including understanding what constituent elements of ‘pay’ need to be included in the calculation, and in respect of which weeks.
If you would like any more information regarding any of these issues, please do not hesitate to contact our team of specialist employment lawyers for more information.
This update contains general information only and does not constitute legal or other professional advice.
Douglas Strang, Senior Associate: dst@bto.co.uk / 0141 221 8012 / Connect with Douglas on LinkedIn
Kimberley Tochel, Trainee Solicitor: kto@bto.co.uk / 0141 221 8012 / Connect with Kimberley on LinkedIn
