Holiday pay: long-term backpay claims

The Northern Irish Court of Appeal has decided that, contrary to a previous English decision, employers cannot rely on a gap of 3 months to break a series of deductions with the result that it makes it easier for employees to bring historic holiday pay claims. Although the decision is only persuasive it could open the door for a similar claim in the English and Welsh courts and this finding could have significant cost implications for employers. 

In Chief Constable of the Police Service of Northern Ireland and Northern Ireland Policing Board v Agnew and others, the Northern Ireland Tribunal agreed with the 3,380 claimants who claimed that there had been an unlawful deduction from wages when their employers paid holiday pay at the basic rate which did not take into account of payments for overtime worked. The claims date back to when the Working Time Regulations 1998 ("WTR") were first introduced.

The Northern Ireland Tribunal also took the stance to reject the English Tribunal decision in Bear Scotland Ltd v Fulton where a gap of more than 3 months between deductions broke a series of deductions. The Northern Ireland Tribunal decided that what would amount to a series of deductions would need to be fact dependent and that it was wrong to find that a gap of three months automatically broke a "series of deductions", contradicting the English Tribunal.

Although the defendants accepted that they should have given the employees normal holiday pay (taking into account the overtime worked rather than basic pay) they appealed the decision and asked the Court of Appeal to decide whether a series can be broken by a break exceeding 3 months or by the payment of a lawful payment.

On appeal, the Court of Appeal, agreed with claimants that the decision in Bear Scotland was wrong with regard to the 3 month gap, and that if there was a "sufficient similarity of subject matter, such that each event is factually linked with the next ..... in the alleged series..." that would be enough to amount to a series. They confirmed that:

• whether there is a series is question of fact to be decided in each individual case; and
• a series is not ended, as a matter of law, by a gap of more than 3 months between unlawful deductions nor is it ended by a lawful payment.

Consequently, the claimants could look further back and claim more historic holiday pay.

Other key findings to emerge from the Court of Appeal decision include the following:

• In Bear Scotland the EAT held that EU leave (4 weeks under regulation 13 of the WTR is deemed to be taken first, followed by UK leave (1.6 weeks under reg. 13A of the WTR) and then, if any, contractual leave. The Court of Appeal however said that the approach in Bear Scotland would inevitably increase the chances of creating a break of three months or more between underpayments of holiday pay and as such there is no requirement for certain types of leave to be taken in any particular order.
• Fixing an arbitrary reference period for the purposes of calculating holiday pay (12 weeks being commonly used) was incorrect. Instead the reference period should be determined by reference to each claimant and ‘be long enough to be representative of the claimant’s working pattern’. It is a fact-sensitive question.

Although this case was heard in Northern Ireland and is not therefore binding in England and Wales, it could open the doors for similar claims and/or appeals in relation to these points – the wording in the Employment Rights (Northern Ireland) Order 1996 and the Employment Rights Act 1996 ("ERA") is the same.

Employers are more likely to see claims being brought under the ERA as opposed to the WTR as, under the WTR, the time limits are more restrictive in practice as there is not the concept of a "series of deductions". This means that, under the WTR, once 3 months have passed since the unlawful deduction, the deduction will fall outside of the time limit to bring a claim.

However, in the England, Wales and Scotland there is a 2 year regulation backstop introduced by the Deduction from Wages (Limitation) Regulations 2014 ("Limitation Regulations"). 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. There is no such equivalent regulation in Northern Ireland so claims could theoretically go back to 1998.

The Limitation Regulations also provide that regulation 16 of the WTR 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).

Given that this case may prove persuasive if further appeals or claims were to be brought in the English and Welsh courts and the Limitation Regulations only provide a back stop of two years, employers are advised to (if they have not yet) review their current practices and historic holiday pay liabilities to ensure that not only are they complying with the current English law, but are prepared for a change in how the courts deal with these historic holiday pay claims going forwards. Companies acquiring other businesses may also want to ensure that there are appropriate indemnities and warranties in place to guard against the risk of historic holiday pay claims.

For more information, please get in touch with Connie Coleman, associate, on +44 (0)1392 685267 / [email protected] or Steph Marsh, trainee solicitor, on +44 (0)1752 675 101 / [email protected].