Supreme Court decision represents seismic shift in law on holiday pay

October 31, 2023

By James Kinsey

 

October 2023’s Supreme Court decision in the case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (‘Agnew’) represents a seismic shift in the law on holiday pay. The decision makes it much easier for Claimants to make historic underpayment of holiday pay claims in circumstances where they seek to demonstrate a chain of unlawful deductions. The case concerns Northern Irish workers and Northern Irish laws however the decision has wider implications for workers and employers in England and Wales.

Background

A worker is entitled to 5.6 weeks’ holiday per year pursuant to the Working Time Regulations 1998 (‘WTR 1998’). If a worker has suffered an underpayment, they may bring a claim under Regulation 30 of the WTR 1998 within three months of the underpayment. However, there is no right to bring a claim for a series of deductions.

Alternatively, a worker can make an unlawful deduction from wages claim under s.23 of the Employment Rights Act 1996 (‘ERA 1996’). Under the ERA 1996, a worker can claim for a series of deductions if the claim is made within 3 months of the last deduction. However, in England and Wales, there is a two-year backstop because of the Deduction from Wages (Limitation) Regulations 2014 which provide that a worker can only make a claim for unlawful deduction from wages stretching back a period of two years.

The previous position flowing from the EAT’s decision in Bear Scotland Ltd v Fulton and others [2015] IRLR 15 (‘Bear Scotland’) was that the chain of any series of deductions would be broken where a period of more than three months elapsed between deductions. The consequence of this decision was that often Claimants could not take advantage of the series extension.

Agnew

The Respondents to the appeal were made up of 3380 police constables and 364 civilian employees of the Police Service of Northern Ireland. They had brought claims under identical Northern Irish legislation to the WTR 1998 and ERA 1996 against their employer relating to underpaid holiday pay when they took annual leave. The Appellants accepted that the Respondents’ holiday pay had been calculated incorrectly as it had been paid by reference to basic pay rather than normal pay. Holiday pay should be calculated by reference to normal pay including overtime / commission rather than simply basic pay as per the ECJ’s decision in Lock v British Gas Ltd (C-539/12). However, the Appellants disputed inter alia the extent of the remedy available to the Respondents including how far back the holiday pay claims could reach.

One of the key issues for the Supreme Court was to decide whether a gap of three months, or the making of a lawful payment, between unlawful deductions breaks a series of deductions and how a series of deductions should be defined.

The Supreme Court unanimously found that a gap of more than three months does not necessarily break a series of deductions and nor does the insertion of a correct payment in between underpayments. In making this decision the Supreme Court overturned Bear Scotland.

The Court noted that the purpose of the ERA 1996 and the equivalent Northern Irish legislation was to protect workers especially vulnerable workers from being underpaid. The series extension operates to protect workers against a short limitation period for a worker who suffers repeated deductions. The reasoning behind the decision was made clear by Lord Kitchin and Lady Rose at [117]:

As for holiday pay, there will often be cases where such payments (and corresponding deductions) take place more than three months apart and where each of those failures is the consequence of the employer failing properly to meet its obligations. If, as may well be the case, those deductions would otherwise constitute a series, the imposition of a mandatory cut off after an interval of three months might indeed produce unfair consequences. It would permit what UNISON described as a canny operator to game the system by spacing out the payments (from which deductions had been made) over a period of more than three months. It would also mean that an employee who chose to take holiday leave on occasions more than three months apart would break the series; and any claimant concerned about these matters would have to keep issuing a new claim after each relevant limitation time interval, if only to preserve his or her position. That would make no sense at all. It would also impose a wholly unnecessary burden on the employee for whom each individual deduction is relatively small, but where the aggregate is substantial.    

The Court gave the ordinary English meaning to the word ‘series’ namely a ‘number of things of a kind which follow each other in time’. It made clear that what constitutes a series is a question of fact that must be answered in light of all the circumstances. For example, a court considering the issue would have to consider the ‘similarities and differences, their frequency, impact and size, how they came to be made and applied, and what links the deductions together and all other relevant circumstances’. It was said that it is important to identify the ‘unifying vice’ that linked the series of deductions together. For example, in the case of Agnew it was the calculation by reference to basic pay rather than normal pay. Therefore, just because deductions follow each other in time does not necessarily mean there is a series. All will depend on the nature and reason for the deductions of which the complaint is made.

Comment

The Supreme Court decision will impact employers in both Northern Ireland and England and Wales due to identical provisions in the ERA 1996. It will now be easier for Claimant’s to make a claim for a series of unlawful deductions stretching back to two years. This is bad news for employers especially large employers who may face significant financial exposure if a large number of holiday pay claims were brought by multiple workers in circumstances where the employer’s defence has been weakened due to the reversal of Bear Scotland. The good news for employers in England and Wales is that unlike in Northern Ireland employers can benefit from the two-year backstop pursuant to the Deduction from Wages (Limitation Regulations) 2014.

James Kinsey regularly acts for claimants and respondents in Employment cases and has experience in a range of matters involving unfair dismissal including constructive dismissal, wrongful dismissal, discrimination and equality law claims, redundancy related claims, holiday pay, restrictive covenants, unlawful deduction of wages, worker status.