The Supreme Court is this week set to hear yet another case that could affect how employers calculate holiday pay, and clarify the method for determining whether an employee should receive back pay in cases where there has been a break in underpayments.
In the case of Chief Constable of The Police Service of Northern Ireland and another v Agnew and others, the Supreme Court will decide whether historic holiday pay claims can be brought where there are gaps of three months or more between periods of underpayment.
The hearing will take place on 14-16 December 2022, with a decision expected in 2023.
In England, Scotland and Wales, a claim for holiday pay deductions must be brought within three months of the deduction, or within three months of the last deduction in the case of a series of underpayments. However, the Supreme Court’s ruling has the potential to change that.
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. This meant that the Police Service of Northern Ireland (PSNI) could owe back pay of around £30m.
Recent holiday pay rulings
The case was brought by Unison on behalf of a PSNI employee, Mr Agnew, and 3,700 colleagues, following the Employment Appeal Tribunal’s ruling in Bear Scotland v Fulton in 2014. 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 introuced, 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.
To further reduce the impact of the Bear Scotland ruling, the Deduction from Wages (Limitation) Regulations 2014 came into effect in 2015 and introduced a “backstop” period which prevented employees from making unlawful deductions from wages claims, including claims for holiday pay, from more than two years ago. However, this was not introduced in Northern Ireland.
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.
PSNI disagreed with this and lodged an appeal with the highest court in the UK. If the Supreme Court agrees with NICA’s ruling, many employers across Great Britain and Northern Ireland could face claims for holiday underpayment.
The Supreme Court will also consider whether the respondents have been discriminated against under the European Convention on Human Rghts.
If the Supreme Court opts to follow the reasoning of the Court of Appeal in the Agnew case – which was that any holiday day is a combination of all types of leave – this will create a real practical problem for businesses” – Lesley Rennie, WorkNest
Lesley Rennie, principal employment law solicitor at WorkNest, said the Supreme Court’s recent comments in Smith v Pimlico, gives an indication that it supports Agnew’s view that a series of underpayments is not broken if there are more than three months between them, and that a correct payment does not break the chain.
“If this is the case, an employer’s potential liability for historic underpayments will be greatly increased, although there is generally a two-year limitation on claims in Scotland and England,” she said.
“The second point is whether any given holiday day can be described as being solely Working Time Directive (WTD) leave or solely Working Time Regulation (WTR) leave, or if it is a combination of all leave. If the Supreme Court opts to follow the reasoning of the Court of Appeal in the Agnew case – which was that any holiday day is a combination of all types of leave – this will create a real practical problem for businesses.
“Pay for WTD leave days must reflect normal remuneration so it must take into account things such as commission, allowances and overtime. If we must distinguish between WTD and WTR leave, businesses would need to carry out complex calculations to work out what element of each makes up a holiday day and pay it accordingly or apply a blanket approach of paying all holiday days at the rate of ‘normal remuneration’.”
Rennie said that employers should review their holiday practices now to ensure that WTD leave is paid at normal remuneration going forward and assess whether there have been any underpayments within the last two years.
“Whilst this is a Northern Irish case, the Supreme Court’s decision will be binding throughout the UK. That means that employment tribunals in Scotland and England will have to follow it,” she said.
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