£40 MILLION HOLIDAY PAYOUT
Landmark Supreme Court ruling means that Northern Irish Police officers will receive approximately £40 million for underpaid holiday entitlements.
The Supreme Court’s decision in Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (Northern Ireland) [2023] UKSC 33 means that historical holiday pay claims can be brought where there are gaps of three months or more between periods of underpayment.
The decision concerns the right for workers to be able to claim for historical deductions from salary using the mechanism of a “series of deductions”.
Brief background:
Under the Working Time Regulations (WTR) workers in Great Britain are entitled to 5.6 weeks’ holiday per year. This is broken down into 4 weeks’ holiday under the European derived Working Time Directive and a further 1.6 weeks granted under the domestic WTR. Northern Ireland has equivalent provisions.
"Whilst employers can still rely on the two year backstop to limit any compensation due in these cases, we suggest that employers carry out an audit of any potential liability they may have and budget accordingly. It will also be important for employers to keep clear calculations of how holiday pay is calculated in order to demonstrate that they have paid workers properly pending any proposed government reforms in this area."
We have seen a number of cases over recent years dealing with holiday pay entitlements; the European Court of Justice case of Lock v British Gas Trading Ltd decided that the European derived holiday pay (the 4 weeks’ leave) must include other payments where relevant, such as commission payments. Subsequent cases have extended this entitlement to include overtime if carried out with sufficient regularity.
Under domestic legislation, a worker is entitled to bring a claim for unlawful deductions from wages if they have not received holiday pay, or they have not received their full entitlement. Vitally, any claim of this nature needs to be made within 3 months of the last in the series of deductions of underpayments. In 2015 the Employment Appeal Tribunal case of Bear Scotland v Fulton decided that where there is a gap between the alleged deduction of more than 3 months, this breaks the chain, and the worker would only be entitled to bring a claim in respect of the most recent period (as long as it is presented no more than 3 months from the last deduction).
In Great Britain, there is a two year backstop which limits the amount of backpay to a two year retrospective period. In Northern Ireland, there is no equivalent to the two-year backstop.
Agnew judgment
The Supreme Court had to decide whether the decision in Bear Scotland should stand, or, whether the police officers were entitled to claim for a series of underpayments going back a number of years.
In this case, the police officers had been paid holiday pay over a number of years based on basic salary only. As mentioned above, as case law had developed, these police officers became entitled to be paid overtime as part of their holiday pay. Whilst the Police Service acknowledged that the officers were entitled to these additional payments, it said that these claims could not go back over several years and instead should be limited to the last in the series, with any break of more than 3 months in between the deductions breaking the chain.
The Supreme Court disagreed and decided that there is no legal basis which would prevent a worker from claiming a ‘series of deductions’ even if there is more than a 3 month gap between the alleged deductions.
The Court observed that a strict 3 month time limit for making a complaint in respect of each deduction would impose a significant burden on a worker. This was the case not only for holiday pay but for deductions from any of the other forms of wages to which a worker may be entitled, including sick pay, commission and other payments. The result would be that a worker would have to keep making a new claim after each alleged deduction which would not be practical.
When deciding whether or not deductions form a series, all relevant circumstances should be considered, including their similarities and differences, their frequency, size and impact, how they came to be made and applied, what links them together and all other relevant circumstances. The Supreme court also stated that even if full payment is made during the series of deductions, it does not necessarily mean that this breaks the series of deductions.
In the Agnew case, the incorrect calculation linked all the deductions going back to 23 November 1998, and therefore the claimants could claim for underpaid holiday pay since that date.
The Supreme Court also addressed the decision made in Bear Scotland, that the four weeks’ Euro leave should be taken first, and the “additional” 1.6 weeks under the WTR 1998 and any contractual leave should be taken afterwards. In practice, this frequently caused a three-month gap between a series of deductions, therefore breaking the series and limiting a claimant’s claims. Whilst this was not of particular relevance to the Agnew case given its findings, the court stated that the Euro leave of 4 weeks and the further domestic entitlement of 1.6 weeks should be seen as ‘composite’ and indistinguishable. If specifying the order in which leave should be taken would break the series of deductions, this would deny the worker their full holiday pay entitlement, which would be antithetical to the purpose of the entitlement to paid leave, which is to maintain a worker’s health and wellbeing.
Comment
Although it originated in Northern Ireland, the Supreme Court judgment is also binding in Great Britain. It immediately opens employers to claims going back two years in Great Britain and much further in Northern Ireland. It is now clear that workers’ entitlement to claims for unlawful deduction from wages is not necessarily broken by a gap of more than 3 months between deductions.
We consider there may now be further litigation regarding what constitutes a “series of deductions” by employers seeking to limit their liability in these types of claims.
Whilst employers can still rely on the two year backstop to limit any compensation due in these cases, we suggest that employers carry out an audit of any potential liability they may have and budget accordingly. It will also be important for employers to keep clear calculations of how holiday pay is calculated in order to demonstrate that they have paid workers properly pending any proposed government reforms in this area.