On 4 October 2023, the UK Supreme Court delivered its enthusiastically awaited judgment in the case Chief Constable of the Police Service of Northern Ireland and another (Appellants/Cross-Respondents) v Agnew and others (Respondents/Cross-Appellants) (Northern Ireland), confirming that employees can make historic claims of underpayment of holiday pay even if there are gaps of more than three months between deductions.
The case examined historic underpayments of holiday pay to police officers and civilian staff working for the police in Northern Ireland, arising from calculations based on basic pay without consideration of payments made for overtime that was regularly worked.
The officers and staff brought claims for underpayment of holiday pay after having historically received basic pay only during periods of annual leave. The parties agreed that there had in fact been an underpayment, and that holiday pay should have been calculated to include overtime pay for periods of compulsory overtime. The critical issue before the Supreme Court in this case was how far back the claimants were entitled to go with their claims.
In the 2014 case of Bear Scotland v Fulton, the Employment Appeal Tribunal had held that payments made for regular compulsory overtime must be included in holiday pay calculations.
The relevant Northern Irish legislation (which mirrors the Employment Rights Act 1996) made it clear that a claim could only be made in respect of a payment made in the three months before the claim was brought – unless the deduction was part of a series, in which case the deductions could be linked together, always provided that the claim was brought within three months of the last of the series of deductions.
In Bear Scotland v Fulton, the Employment Appeal Tribunal had previously concluded that deductions could only be linked in a series if there was a gap of three months or less between each deduction.
The Supreme Court in Agnew has now held that where a series of deductions are all based on an employer failing to properly meet its obligations to pay holiday correctly and – but for the mandatory cut off after three months which was established in Bear Scotland they would otherwise constitute a series – then employees should be able to link each deduction. The Court said that to hold otherwise would produce “unfair consequences.”
The Supreme Court thus concluded that the period during which a claim can be brought is three months from the date the last payment was made, but that this three-month limit does not restrict or qualify the meaning of a “series” of deductions.
The Supreme Court also gave guidance on some consequential matters, specifically that:
- There is no legal requirement for a distinction to be drawn between the four weeks of “EU leave” and the additional 1.6 weeks of leave required by domestic law – all 5.6 weeks of statutory leave (plus any enhanced contractual leave) now form part of a single “pot.”
- Reference periods, when calculating holiday pay, are a question of fact, and it is not appropriate to simply use the number of calendar days in the reference period when calculating normal pay.
In the cases that follow this decision, deciding whether a claim in respect of two or more deductions constitutes a claim in respect of a series of deductions will essentially be a question of fact. In answering that question all relevant circumstances must be taken into account, including, in relation to the deductions in issue: 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.
Critically, whether or not the deductions were more or less than three months apart is not, from this point onwards, relevant.
Employers can be comforted by the fact that claims for unlawful deductions from wages under the Employment Rights Act 1996 can, at the present time, still only encompass deductions over a maximum period of two years. That position may change with a change in government.
We have advised on many claims of historic underpayment of holiday pay – particularly with trade union involvement. We would be pleased to support you in any cases that may now arise.