Does a three month gap between holiday underpayments break the chain and prevent employees from being able to claim for unpaid holiday pay before the gap?
Not according to the Court of Appeal in Northern Ireland.
Chief Constable of the Police Service of Northern Ireland (PSNI) v Agnew (Alexander) and others
Claims were lodged in the Industrial Tribunal against the Chief Constable by 3,380 police officers who claimed that their holiday pay being calculated by reference to ‘basic pay’ rather than ‘normal pay’ (taking into account overtime and other emoluments) was unlawful. The claims were backdated to when the Working Time Regulations (Northern Ireland) 1998 were introduced.
The Industrial Tribunal upheld the claims, finding Bear Scotland v Fulton (see https://www.baineswilson.co.uk/news/1247-breaking-series-deductions) to be incorrect in finding that a gap of three months or more would break a ‘series of deductions’ for the purposes of a claim for holiday pay. The PSNI appealed the decision, and as the case originated in Northern Ireland it went straight to the Northern Ireland Court of Appeal instead of the Employment Appeal Tribunal.
The Northern Ireland Court of Appeal held that the current method of calculation flowing from Bear Scotland v Fulton could lead to ‘arbitrary and unfair results’, and stated that identification of a factual link in an alleged series of deductions is what determines whether a correct payment of holiday breaks the series of deductions.
It also found that fixing an arbitrary reference period for calculating holiday pay is incorrect and that a reference period should be determined by reference to each Claimant and be long enough to be ‘representative of the Claimant’s working pattern’. Finally, it held that workers are entitled to all leave from whatever source, and it should not have to be taken in any particular order, and applying Bear Scotland would only inevitably increase the chances of creating a break of three months or more between underpayments of holiday pay.
This decision, whilst not binding in England and Wales, will be persuasive. It will have significant cost implications for employers in Northern Ireland and those employers who have employees working primarily in Northern Ireland. The case may well be appealed and if so, the appeal would be to the Supreme Court, having jurisdiction over the whole of the UK. If it is appealed and the decision upheld, it will mean that a 3 month gap between holiday underpayments won’t break a series of deductions.
As a practical example, consider an employee who received 33 days including public holidays. Some savvy employers have been specifying that statutory holidays are deemed to be taken first. The requirement to pay overtime etc as holiday pay only applies to the 4 weeks/20 days required under the European Working Time Directive. Assuming the employee takes 4 weeks’/20 days’ holiday in the first 6 months of the holiday year, by the end of the holiday year any claims would be out of time as there would have been a 3 month gap. This case, subject to any appeal, means that the employee could still bring a claim for an underpayment for previous holiday years.
For Northern Ireland employers, the result takes them back to the scary pre-Bear Scotland position that claims could feasibly go back as far as 1998 when the Working Time Regulations came into force. For the mainland UK, the two year back-stop remains and limits exposure but that has been subject to some scrutiny by the Court of Justice of the European Union.
If you would like any advice in relation to holiday pay or have any other employment law or HR queries, please contact our employment team on 01228 552600 or 01524 548494.