Fresh doubts have been cast over the correct approach employers should adopt when deciding whether or not their employees ought to be paid for historic errors in holiday payments made to them. This is due to the decision of the Northern Irish Court of Appeal in Chief Constable for Northern Ireland Police v Agnew.
In 2014, in Bear Scotland v Fulton, the Employment Appeal Tribunal decided that holiday pay claims stretching back over successive leave years could be limited if there was a gap of more than three months between holidays. This was because this gap would break the series of deductions for the purposes of unlawful deductions from wages claims.
Since then, applying this decision effectively has meant that most claims for long periods of back-pay have been successfully defended; most people have gaps of more than three months between periods of annual leave. It has also meant that shrewd employers have successfully interrupted a series of unlawful deductions by commencing payment of the correct amount of holiday pay for more than three months.
Chief Constable for Northern Ireland Police v Agnew
In this case, numerous claimants brought claims for underpayment of holiday pay, in some cases dating as far back as November 1998. During this period, the claimants alleged that there had been unlawful deductions from their wages as they were paid holiday pay at their basic rate. They claimed that their holiday payments should have included overtime payments and various other allowances following the rulings in Bear Scotland (referred to above) and Lock v British Gas Trading Ltd and others.
The Northern Ireland Tribunal and Court of Appeal upheld the complaints and held that gaps between holidays within a leave year did not break a series of deductions, for the purposes of claiming holiday pay. As a result, a series of unlawful deductions was established:
“We consider that in order to establish a series of deductions a claimant does not have to establish that every payment made to him during a particular period of time was subject to an unlawful deduction. In our view it is necessary to identify the alleged series. In these appeals the alleged series is a series of unlawful deductions in relation to holiday pay. There will have been appropriate payments of pay between the various holiday payments whilst the claimants were at work which will not have been subject to unlawful deductions. However identifying the series as a series in relation to holiday pay means that those lawful payments whilst the claimant was at work will not interrupt the series.”
We must also mention that the position relating to the amount of back-pay that can be claimed for underpaid holiday in England, Wales and Scotland is different from the Northern Irish position because of the Deduction from Wages (Limitation) Regulations 2014. These regulations have meant that any claims made after 1 July 2015 have been limited to two years’ back pay. These regulations do not apply to Northern Ireland.
However, for employers and employees the key message to note from this case is that the position regarding holiday pay is not as settled as previously thought. Whilst the decision of the Court of Appeal of Northern Ireland does not have binding force on Employment Appeal Tribunals in England, Wales and Scotland, it is likely that employees will seek to persuade Courts and Tribunals to follow this decision. As such, for the time being, in order to protect itself from future claims and minimise the likelihood of any retrospective claims, an employer will need to consider ending, rather than merely interrupting, the series of deductions in relation to holiday pay. This could be achieved by starting to pay at least the first four weeks holiday pay correctly (Working Time Directive leave), and doing so going forward. Workers would need to bring a claim within three months of the last salary payment from which a deduction had been made. As long as the employer does not recommence making the unlawful deductions again, any worker who has not brought a claim will be time-barred from doing so.
Please note this article should only be considered as guidance and should not be taken as specific legal advice. For further advice on this topic contact Kelly Gibson at Kelly.Gibson@tayloremmet.co.uk or 0114 218 4307.