Can employees claim for historic underpayments of holiday pay even if there are gaps of more than three months between those deductions?

Yes, held the Supreme Court in its long-anticipated decision in the case of Chief Constable of the Police Service of Northern Ireland v Agnew.

What are the facts?

The Claimants were all either police officers or civilian staff working for the Police Service of Northern Ireland. They brought claims for a series of underpayments of holiday pay. Historically, this was calculated with reference to their basic pay only.

What did the court decide?

The issue of what the “normal remuneration” has been decided law for some years by the  case of Bear Scotland when the Supreme Court established “normal remuneration” should include overtime, commission and other allowances. The contentious issue the Supreme Court had to grapple with in Agnew was what was meant by a series of deductions. In Bear Scotland, a series of underpayments had a cut off if there was a gap of more than three months between the employer’s failings. .  three months to be linked  had to be linked by there was a mandatory cut off of three months.

The Supreme Court has also held that a gap of three months between underpayments does *not* automatically break the chain of a series of deductions and neither does a correct payment.

It should be remembered that the impact of this judgment is mitigated for employers in Great Britain by the fact that claims for unlawful deductions from wages under the Employment Rights Act 1996 can only look back at deductions over a maximum period of two years.

What can employers do?

This decision puts holiday pay back in the spotlight and increases the potential financial exposure of employers who have not calculated holiday pay correctly. It is likely to cost the Police Service of Northern Ireland £30-40 million.

The ruling is particularly significant for employers that did not increase holiday pay in response to the European Court of Justice decisions. Many employers changed the way in which they calculated holiday pay as a result. Those that did not do so (and are, for example, still calculating holiday pay on basic pay only) may now face greater liability.

The “three month gap” rule can’t be used by employers in claims about any kind of underpayment (not just holiday pay) so workers can make claims for historic deductions no matter how far apart as long as there’s some common fault.

5th October 2023

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