The UK Supreme Court has dismissed an appeal made by the Police Service of Northern Ireland that means that thousands of police officers and civilian staff should be paid what they are owed.
The PSNI will now have to honour around £40 million in back pay and other employers face the prospect of significant compensation claims for holiday pay miscalculations.
In the case of Chief Constable of The Police Service of Northern Ireland and another v Agnew and others, the Supreme Court decided that historical holiday pay claims can be brought where there are gaps of three months or more between periods of underpayment. It unanimously dismissed PSNI’s appeal.
In 2019, the Court of Appeal in Northern Ireland (NICA) found staff had not received the holiday pay they had been entitled to for many years as calculations had been based on basic pay, without considering elements such as voluntary overtime.
The case was brought by trade union Unison on behalf of a PSNI employee, Alexander Agnew, and 3,700 colleagues, following the Employment Appeal Tribunal’s ruling in Bear Scotland v Fulton in 2014.
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In that case, the EAT found that regular overtime, which employees are obliged to perform if requested by the employer, should be included in holiday pay calculations. PSNI had not been paying employees in this way.
To protect employers from facing claims for back pay potentially going back to 1998, when the Working Time Regulations were introduced, the Bear Scotland judgment said that any such claims would not succeed where there had been a gap of three months or more between holiday underpayments.
NICA’s judgment said there was nothing in the Employment Rights (Northern Ireland) Order 1996 that set a limit on the length of gaps between unlawful deductions, and concluded that a three-month period where the employee had been correctly paid would not break a series of deductions and prevent claims.
It indicated that if the underpayments could be linked, then they could form a series, even if they were more than three months apart.
Jo Moseley, an expert from Irwin Mitchell’s employment team, commented: “Today’s ruling is of major significance and has the potential to cost UK businesses millions of pounds.
“Many businesses will be concerned. Although the decision offers clarity on an issue that many organisations have been concerned about, employers won’t be able to use technical arguments to limit their liability for underpaid holiday pay claims.
“That said, the situation is slightly different in England, Wales and Scotland because the government introduced legislation to limit how far back individuals can bring unlawful deduction from wages claims, to two years. Northern Ireland didn’t do this. But, even with these restrictions, some employers will still have to pay their staff a substantial amount to settle their cases.”
The cost ramifications are seismic. When the details of the decision come out, and it becomes clear how far back these holiday pay claims can go, there will be eye-watering sums of money involved” – Mark McAllister, Labour Relations Agency
Colin Godfrey, employment lawyer at law firm Taylor Wessing, said: “The Supreme Court’s decision has now brought the rest of the UK into line with this judgment. This means that gaps of more than three months will no longer prevent individuals bringing claims for a series of underpaid holidays.
“It will still be necessary to establish that there has been a ‘series’ of deductions (which will depend on whether they are sufficiently similar) but this decision potentially opens the way for significant claims for underpayments over a two-year period. It underscores the importance of getting the calculation of holiday pay right, including understanding what constituent elements of ‘pay’ need to be included in the calculation.”
Unison’s head of legal Shantha David said: “Unison’s intervention has ensured the law has now been corrected. The previous interpretation meant workers couldn’t get compensation where a series of similar underpayments had happened three or more months apart.
“The Supreme Court understood here that this could allow some employers to game the system by spacing out holiday payments over more than three months. For years, many workers have been denied unfairly the chance to have their legitimate claims heard. This judgment ensures they’ll get all the wages they’re rightfully owed.”
Mark McAllister, director of employment relations services for the Labour Relations Agency, said: “This is a landmark decision and has very serious public pay and policy ramifications for Northern Ireland. As a devolved matter there are different rules regarding holiday pay here as compared to GB and this decision will send shockwaves across a wide range of stakeholders.
“The cost ramifications are seismic. When the details of the decision come out, and it becomes clear how far back these holiday pay claims can go, there will be eye-watering sums of money involved.”
Andy Williams, employment partner at Stevens & Bolton, said: “The Supreme Court’s judgment is binding throughout the United Kingdom, bringing a long period of uncertainty for employers to an end.”
He added: “The Supreme Court’s judgment will be of grave concern to many employers, as it greatly increases the potential cost of historic holiday pay claims. The Police Service of Northern Ireland (PSNI) has calculated that, in light of this judgment, the cost of their historic holiday pay claims will increase 100-fold, from £300,000 to £30m.
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“Employers in Great Britain (i.e. those in England, Wales and Scotland) may still, however, take comfort from the two-year limit on historic holiday pay claims [under the Deduction from Wages (Limitation) Regulations 2014]. This two-year limit is not applicable to employers in Northern Ireland, though: this judgment confirms that holiday claims there may now go back up as far as an employee’s period of continuous employment.”
Williams said that following Brexit, the Supreme Court’s decision is final and there is no further option to appeal, but that there may be scope for legislative change to undermine the impact of this judgment, if there is political appetite.
