Happy Friday everyone and thank you for joining us for another case law update. For those of you that missed our last case of the week about an upcoming change to flexible working requests, you can find that here. This week we’re looking at a case straight from the Supreme Court which considers whether an employee can claim for underpaid holiday pay since 1998.

This week’s case involves a holiday pay claim for up to £30m by 3,744 claimants against the Police Service of Northern Ireland.

Prior to this judgment, previous cases had held that employees could treat successive underpayments of holiday pay as a series of deductions as long as there was not a break of more than 3 months (the time limit for bringing a deduction from wages claim) between payments of holiday pay. If there was a break of more than 3 months, that would break the series and later underpayments would be treated as a new series of deductions, preventing employees claiming arrears from before the 3 months break as those arrears would be out of time.

For example, if underpayments are made in January, February, April and July, all just over 3 months apart, the claimant could only bring a claim for the most recent underpayment in July. If those underpayments had been in January, March, May and July, the claimant could claim for all the underpayments in July.

The Respondents in this case are the 3,380 police officers and 364 civilian staff who were employed by the Appellant, the Police Service of Northern Ireland. The Respondents initially brought claims of underpaid holiday pay going as far back as November 1998. The Appellant thought, incorrectly, that it was sufficient to pay basic salary only for holiday pay, without including regular overtime pay. As an employee must be paid their ‘normal’ pay while taking annual leave, the regular (and, in this case, mandatory) overtime hours should have been factored in to their holiday pay.

While the initial point that the staff were underpaid was accepted, the Police Service disputed the period for which underpaid amounts could be claimed. The Appellants argued only underpayments falling within the normal 3 months limitation period could be recovered. The Respondents claimed that all of the underpayments formed part of a series of deductions allowing recovery of all underpayments. The difference between the two positions was a liability of £300k compared with a liability of £30 million.

The Supreme Court agreed with the workers and held that whether the underpayments form part of a series is a question of fact to be determined on a case by case basis and a gap of more than 3 months between deductions didn’t necessarily mean underpayments before and after the gap were part of a different series of deductions.

The Court also considered the purpose of the legislation was to protect potentially vulnerable workers from unlawful deductions. Refusing to allow a worker to claim for deductions because of a 3 month break was found to be in breach of the purpose of the provisions.

There is a little light at the end of the tunnel for employers in England and Wales in that there remains a 2 year statutory limit on how far back holiday pay claims can go.  The Employment Rights Act 1996 was hastily amended by the Deduction from Wages (Limitation) Regulations 2014 in January 2015 to protect employers in England and Wales against claims going back to 1998. Although many commentators have suggested these regulations may be open to challenge, at present they still apply. However, in Northern Ireland there is no equivalent to these regulations which means the 2 year limit doesn’t apply in NI!

It’s also worth noting that the above applies to holiday taken but underpaid. Where holiday is not allowed to be taken (for example where employers wrongly think that someone is self-employed and not an employee or worker), another case has held that the 2 year time limit doesn’t apply even in England and Wales and unlimited arrears of holiday pay can be claimed.

Takeaway Points

The main thing to remember is that holiday pay under the Working Time Regulations should include regular overtime and commission payments. A person should not be worse off taking their annual leave than had they attended work.

If you or someone you know has been underpaid holiday pay or you are an employer who needs advice on potential holiday pay risks, please contact a member of our team who will be able to assist you.