A Landmark Update on Holiday Pay

The Supreme Court in the case of Chief Constable of Police Service of Northern Ireland v Agnew has recently considered the calculation and timing of holiday pay claims and ruled that deductions can be treated as a series even if separated by more than three months.

Background

This case involved a substantial number of claimants, including over 3,300 police officers and 364 civilian employees, who alleged underpayment of their holiday pay dating back to 1998. The core issue was that their holiday pay calculations had been based solely on basic pay, failing to consider overtime.

It was accepted that holiday pay should have been computed based on their ‘normal remuneration,’ encompassing overtime.

The critical question brought before the Supreme Court was the extent to which claimants could seek redress for historical underpayments.

The Legal Position

Historically, workers had three months from the date of a holiday pay underpayment to file a claim. However, workers could also claim for underpayments predating this period if they could demonstrate a series of connected deductions (whilst also bringing the claim within the normal limitation period noted).

The Bear Scotland v Fulton case at the Employment Appeal Tribunal (EAT) had, rather controversially, established that if the gaps between underpayments extended beyond three months, they could not be regarded as part of a linked series, effectively limiting claims for back pay where longer intervals occurred between underpayments.

Decision

The Supreme Court’s decision in Agnew has altered this landscape. The Court ruled that when assessing a claim for multiple deductions, various factors must be considered to establish if they constituted a series. These factors include the similarities and differences between deductions, their frequency, magnitude, impact, the manner in which they occurred and were applied, and the connections among them. Importantly, the mere presence of a gap greater than three months between underpayments can no longer be relied upon to sever the chain of deductions.

Comments

This decision carries significant implications for employers. It underscores the importance of ensuring that holiday pay calculations are accurate. In light of this ruling, workers now have the potential to claim back pay for a series of deductions that may be less frequent than the three months previously allowed.

It’s important to note, however, that the judgment (based on Northern Irish legislation) has not altered the existing two-year backstop for workers seeking redress for deductions, which may relate to holiday pay underpayments, under the Employment Rights Act 1996.

Employers are advised to review their holiday pay practices and calculations in light of this ruling to avoid potential claims and ensure compliance with the law.

Case Reference(s):       Chief Constable of Police Service of Northern Ireland v Agnew [2023] UKSC 33

Bear Scotland v Fulton UKEATS/0047/13/BI