Employment and Pensions E-Bulletin Article

On 8 January 2015 the Deduction from Wages (Limitation) Regulations 2014 ("Limitation Regulations") came into force.  These provide that most unlawful deduction from wages claims (including holiday pay claims) submitted on or after 1 July 2015 will be subject to a back stop of two years from the date the claim is presented. 

Following the AMEC Group Ltd v Law and related appeals ("AMEC") case businesses were inevitably concerned that they had significant past liability for historic holiday pay.  As was widely reported at the time, the AMEC case found that non-guaranteed overtime must be taken into account when calculating holiday pay for the minimum four weeks' annual leave required by the European Working Time Directive ("Euro Leave").  The case also opened the gates for other types of variable pay needing to be included (for more information see our article: What should I be including when calculating holiday pay?). 

The Limitation Regulations were introduced by the government to reduce the impact of the AMEC decision on businesses.  They create an ultimate back stop of two years for claims submitted on or after 1 July which will be welcomed by employers.

The ability of workers to claim retrospective holiday pay was also restricted by findings in the judgment in AMEC itself.  The EAT established that a series of deductions would be broken where there was a gap of more than three months between deductions.  However, this decision is controversial and maybe the subject of future litigation.  It also does not rule out historic claims.  Whether the chain is broken will depend on a worker's pattern of taking holiday and, particularly where businesses require bank holidays to be taken as annual leave, there is still scope for an unbroken series of deductions going back some time (for more information please see our article: How far back should I go when calculating exposure for retrospective holiday pay?).  

The Limitation Regulations also provide that regulation 16 of the Working Time Regulations 1998 does not confer a contractual right to paid leave. This is aimed at ensuring that the new limitation on deduction of wages claims cannot be side-stepped by workers instead bringing a contract claim in the civil courts (which attract a longer limitation period of six years).

Although the focus of the Limitation Regulations is on holiday pay they have wide application and also apply to most other types of unlawful deduction of wages claims (except for deductions for statutory sick pay, statutory maternity pay and other similar family leave payments, guarantee payments or protective awards).  Some commentators have argued that the Limitation Regulations are "ultra vires" i.e. that the government did not have the power to enact them in the way they did.  This is partly because they impact on some unlawful deductions claims which do not derive from European law.  However, the time limit for bringing a judicial review of the legislation has arguably passed and it will be difficult to challenge the application of the Limitation Regulations.

If you have any questions on this article please contact Benjamin Loxton, senior associate on +44 (0)117 915 4954 or email benjamin.loxton@footanstey.com or Helen Dallimore, senior associate on + 44 (0)1392 685289 or email helen.dallimore@footanstey.com

Tags: Employment and Pensions2015