Supreme Court opens the door to more holiday pay claims

The Supreme Court has ruled that a worker does not automatically lose the right to claim for a series of underpayments of holiday pay where there is a gap of more than three months between the underpayments or where a correct payment of holiday pay is received.

Unlawful deduction claims

Workers have to bring an unlawful deductions claims within three months of an underpayment. However, where there is a series of underpayments, they can bring a claim within three months of the last in the series.

Holiday pay claim

In Agnew and other v Chief Constable of the Police Service of Northern Ireland and another, police officers and civilian staff brought a claim for underpaid holiday pay going back to 1998. Their holiday pay was calculated by reference to their basic pay and so did not include pay for overtime which they worked regularly. They argued that their holiday pay should have included overtime and there had been a series of deductions from their wages, meaning that they could claim in respect of the whole series of underpayments.

The Chief Constable accepted that overtime pay should have been included in holiday pay calculations as, following European Court rulings, holiday pay should reflect normal remuneration. However, he argued that a series of deductions from wages (under the Northern Irish equivalent of the unlawful deductions provisions in the Employment Rights Act 1996) is broken where there is a gap of more than three months between the underpayments or where a correct payment of holiday pay is made. If successful this argument, which reflects the decision of the Scottish Employment Appeal in Bear Scotland Ltd v Fulton, placed a severe limitation on how many previous years of underpaid holiday the workers could claim for. For example, the series of deductions would come to an end if a worker did not take holiday for three months, as they would have been paid their wages correctly for three months in a row. Similarly, the series of deductions would come to an end if the worker did not work any overtime during the holiday pay calculation reference period, as payment of basic pay for that holiday would have been correct.

An industrial tribunal in Northern Ireland upheld the claimants’ claims going back to 1998. The Chief Constable’s appeal to the Northern Irish Court of Appeal was unsuccessful and he appealed to the UK Supreme Court.

Supreme Court dismisses appeal

The Supreme Court dismissed the appeal. It ruled that the purpose of the “series of deductions” provisions is to protect workers from being paid too little and from having to bring claims within three months of each underpayment where there is a series of underpayments. It agreed with the Court of Appeal that “series” is an ordinary English word and, broadly speaking, means a number of things of a kind, and here, a number of things of a kind which follow each other in time. What constitutes a “series” is a question of fact that must be answered in light of all the relevant circumstances, 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.

It agreed with the Court of Appeal that in this case each unlawful underpayment was linked by the common fault that holiday pay had been calculated by reference to basic pay only, rather than normal pay. A series does not require a contiguous sequence of deductions and so a gap of more than three months between deductions does not necessarily bring a series to an end. Nor does a correct payment of holiday pay break a series of underpayments if that correct payment still comes about through the application of the common fault that holiday pay is to be calculated by reference to basic pay rather than normal pay.

What does this mean for employers?

Although this was a Northern Irish case, the Supreme Court’s decision will be also binding on employers in England, Wales and Scotland. The Supreme Court has overturned the Scottish EAT’s decision in Bear Scotland and so employers will no longer be able to argue that a three month gap between underpayments or a correct payment of holiday pay brings a series of deductions to an end. The judgment applies to all unlawful deductions claims, not just those in respect of holiday pay.

However, the impact of the decision is limited to some extent in England, Wales and Scotland as under the Deduction from Wages (Limitation) Regulations 2014, unlawful deductions claims can only go back two years from the date of the employment tribunal claim. This legislation applies to claims issued on or after 1 July 2015 but does not apply in Northern Ireland.