Holiday Pay: Landmark Decision on Historic Underpayments

The Supreme Court has ruled in favour of employees in the case of Chief Constable of Police Service of Northern Ireland v Agnew. This decision is important for employers to note because it outlines the rights of employees to claim historic underpayments of holiday pay, even with gaps of more than three months between deductions.

In this case, police officers and civilian staff in Northern Ireland filed claims for underpayment of holiday pay. Historically, they had only received basic pay during their annual leave, which was determined to be an underpayment because compulsory overtime payments should have also been included. The key issue before the Supreme Court was the scope of these claims and how far back in time employees could go to seek compensation.

The relevant Northern Irish legislation, similar to the UK’s Employment Rights Act 1996, stated that a claim for underpayment could only be made within three months from the date of the payment in question. However, an exception allowed claims to be linked if they formed a series of deductions, provided that the claim was brought within three months of the last deduction in that series.

Previously, in the case of Bear Scotland v Fulton, the Employment Appeal Tribunal (EAT) it was concluded that deductions could only be considered part of a series if the gap between each deduction was three months or less.

The Supreme Court’s ruling in the Agnew case marks a significant departure from the Bear Scotland decision. The Court held that when a series of deductions are all connected to an employer’s failure to properly give holiday pay, and if not for the mandatory three-month limit imposed by Bear Scotland, they would constitute a series. Therefore, employees should be allowed to link each deduction. The Court found that denying such linking would result in unfair consequences for the employees.

In practical terms, this means that the three-month limit should not restrict or qualify what constitutes a “series” of deductions. Employees are now entitled to a three-month window from the date of the last payment to bring a claim, regardless of the gaps between deductions.

Key Takeaways for Employers

In the UK, the Deduction from Wages (Limitation) Regulation 2014 imposes a strict two-year limit on how far back an individual can go when making claims for unlawful wage deductions. In contrast, Ireland does not have a similar legal restriction. Therefore, individuals in Ireland can make claims for unpaid wages that can extend further back in time. 

The Supreme Court’s decision broadens employees’ rights to claim historic underpayments of holiday pay. Employers must be prepared for claims that might date back further than three months.

The ruling emphasises that a “series” of deductions need not have gaps of three months or less between each deduction. This provides greater flexibility for employees to link deductions over an extended period.

Employers should ensure they are correctly calculating and paying holiday pay, including factors such as compulsory overtime. Compliance with holiday pay regulations is essential to avoid potential claims.

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