Supreme Court ruling on back-dated holiday pay: what you need to know

On Wednesday 4 October, the Supreme Court delivered its judgment in the case of Chief Constable of the Police Service of Northern Ireland v Agnew & others.  

The two key findings to come from this decision are: 

• A gap of more than three months between deductions won’t break the chain of deductions if each is linked by the same underlying cause (in this case, underpayment of holiday pay because it was calculated on basic pay). This overturns the 2014 Employment Appeal Tribunal ruling in Bear Scotland v Fulton that a three-month gap between deductions would prevent claims going back beyond that point. 
• There’s no requirement (as a matter of law) that the leave derived from different sources (e.g. contractual holiday, the European four weeks, and the UK’s 1.6 weeks) must be taken in any particular order. 

Facts of the case 

Police officers and civilian employees of the Police Service of Northern Ireland (the PSNI) received holiday pay calculated with reference to their basic pay, excluding overtime and certain allowances.  

Employees claimed unlawful deduction from wages based on this underpayment of holiday pay. The PSNI accepted that holiday had been underpaid, so the appeal was about how far back they could claim backdated holiday pay and what the correct approach for calculating underpayments of holiday pay is. 

The claimants were successful at the Industrial Tribunal and the Court of Appeal, but the PSNI  appealed to the Supreme Court. The case hasn’t been binding in the UK before, as Northern Ireland Court of Appeal decisions aren’t binding on the Employment Appeal Tribunal (EAT) – which covers England, Scotland and Wales – but this Supreme Court decision will be binding in all parts of the UK. 

Does this ruling mean there’s no limitation period for  series of deductions claims? 

 No. Claims must still be brought within three months from the date the last deduction/underpayment was made. 

Is this ruling restricted to holiday pay underpayments? 

No, this will apply to any series of unlawful deductions claims. 

What constitutes a ‘series of deductions’?  

The Supreme Court agreed with the Court of Appeal that “series” should be viewed in its normal context as “a number of things of a kind which follow each other in time”.  

This is a question of fact “and 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.”  

In this case, the underpayments were linked by the practice of paying holiday pay calculated with reference to basic pay rather than normal pay. 

How far can underpaid holiday pay claims go back?  

In England, Scotland and Wales, the Deduction from Wages (Limitation) Regulations 2014 introduced a two-year limit on unlawful deductions claims brought after 1 July 2015. The 2014 Regulations don’t apply in Northern Ireland and so claims there could potentially go back as far back as 1998 when the Working Time Regulations  were introduced. 

What are the implications of the ‘composite pot’ of holiday? 

Viewing all holiday as part of the same pot makes perfect sense if you’re treating all holidays the same, but in law, different rules apply in terms of calculating holiday pay, carry-over, etc.  

Earlier this summer the government launched a consultation on a proposal to scrap the distinction between the WTD four weeks and WTR 1.6 weeks and applying the same set of rules to the entire 5.6 weeks.  

However, the consultation paper sat on the fence as to which set of rules should be applied to the pot. It just noted that this could either put additional financial burdens on employers or significantly reduce workers’ entitlements. The consultation closed on 7 July, and we’re waiting for the government to publish their response – of course, we’ll let you know as soon as we know any more. 

Any questions? Call the advice line! 

If you have any questions about any of the above, please get in touch on your 24/7 advice line on 0345 844 4848!