Supreme Court issues landmark ruling in holiday pay case

The Supreme Court in Chief Constable of the Police Service of NI and others v Agnew has made it much more difficult for UK employers to limit their liability for underpaid holiday claims that have been brought as a series of unlawful deductions. 

The law

Workers can bring claims for underpaid holiday either under Regulation 30 of the Working Time Regulations 1998 or as a series of deductions under Section 23 of the Employment Rights Act 1996. 

In both cases, the worker has a short three-month window to bring a claim, although the ‘trigger points’ are different. In the case of an unlawful deduction from wages claim, time runs from the date of the last underpayment. Provided workers issue their claims on time, they can include previous deductions as part of a series of underpayments. 

That principle was applied, without controversy, until 2014 when the Employment Appeal Tribunal (EAT) handed down its decision in Wood and others v Hertel and Fulton and Bear Scotland Limited, which considered whether voluntary overtime and some allowances should be included in holiday pay. 

The Judge took the opportunity to review Section 23 and laid down principles which severely restricted how far back workers could link underpayments of holiday pay. The EAT drew a distinction between the first 20 days leave (so-called ‘European leave’), which had to reflect a worker’s normal pay and therefore meant that overtime etc had to be included, and additional leave which could be paid at basic rates. It ruled that gaps between the different ‘types’ of leave, or gaps of more than three months between deductions, broke the link. This meant that lawyers acting on behalf of employers could often restrict claims to the worker’s current leave year.

Subsequently in England, Wales and Scotland, the government introduced legislation which meant workers could only recover underpaid holiday for a maximum of two years. Northern Ireland didn’t introduce similar legislation. 

Background to the case

Lead claimants from 3,380 police officers and 264 civilian employees brought unlawful deductions from wages claims because their employer had not included paid overtime and other relevant payments in their holiday pay calculations. They argued that their collective losses amounted to £40 million. The police accepted that it should have included these payments for its civilian staff, but relied on the technical arguments set out in Bear Scotland to limit its liability.

The issue eventually wound up before the Northern Ireland Court of Appeal which ruled in favour of the claimants. It said Bear Scotland was wrong on this point and that a series wasn’t broken by lawful payments, or by a gap between payments of more than three months.