Supreme Court Decision on Historic Holiday Pay Underpayments and What This Means for Employers
The Supreme Court have recently decided in the case Chief Constable of Police Service of Northern Ireland v Agnew that historic holiday underpayments can be claimed even where there are more than three months between deductions.
The Case
Police officers and other staff working for the police in Northern Ireland brought claims for the underpayment of holiday pay after historically only being paid basic pay during annual leave. It was agreed by both sides that the underpayment had occurred and holiday pay should have also included pay for compulsory overtime.
The Supreme Court was asked to consider the period of time over which the Claimants could claim for the underpayment of their holiday pay. The general legal position is that a claim must be brought within three months of a deduction being made, but that claims for historic underpayments can be made if there is a series of deductions, provided there is no more than three months in between each deduction. If a period of more than three months passes in a series, where correct pay is paid, then the series is broken and the Claimant cannot claim for any further deductions after this.
The Supreme Court have now decided that where there are a series of deductions as a result of an employer who has failed to properly meet its obligations to pay holiday pay correctly, it would be unfair to prevent an employee from claiming simply because there was a break of more than three months between deductions. Claimant’s do however still need to bring a claim within the three month time limit from the last deduction.
A series of deductions should now be considered as a question of fact rather than a straightforward calculation of the time in between each incorrect payment. An Employment Tribunal will need to consider all relevant circumstances when making a decision including the deductions in issue and the similarities and differences between each deduction to consider whether they are to be classed as a deduction.
What are the implications for employers?
In this case the employers could be liable for up to £30-£40 million in compensation to employees. However, unlike in Northern Ireland, for employers in Great Britain there is currently a two-year backstop in which claims can only be made for deductions up to two-years’ ago. This will limit the liability of employers who might find themselves at the receiving end of a similar claim.
The decision does not only apply to underpayment of holiday pay but can be applied to any underpayment as long as there is a common fault of the employer.
Employees who believe they have been underpaid by way of a series of deductions will now be able to claim for an underpayment in a series regardless of whether there is more than three months between each underpayment or whether correct payments have been made in between. It is important to remember each claim will be viewed on its own facts.
What should employers be looking to do?
Review holiday pay – are you paying the correct amount of holiday pay to your employees? You should look to audit holiday pay and other payments and assess whether employees are entitled to regular payments. This position can change over time and we recommend that you regularly audit holiday pay and national minimum / living wage payments regularly.
Pay correctly starting from now. This should include payment for any regular or compulsory overtime and commission. A claim can only be brought within three months of the last unlawful deduction, paying correctly now starts the clock on the time limit which a claim can be brought.
How we can help
If you are unsure what your employees are entitled to for their holiday pay or want further information on what this judgment might mean for you, please contact one of our Employment team on 01246 555 111 or contact:
Amy Hallam, Head of Employment 0114 3496989 or email amy.hallam@brmlaw.co.uk
Ellie Leatherday, Associate 01246 564 002 or email ellie.leatherday@brmlaw.co.uk
Jade Taylor, Trainee Solicitor 01246 564 058 or email jade.taylor@brmlaw.co.uk
