No loss of right to claim holiday pay arrears where gap of more than three months

Chief Constable of the Police Service of Northern Ireland v Agnew

Historic holiday pay claims can be brought even where there is a correct payment or a gap of three months or more between a series of underpayments.

Background

Tribunal claims were lodged in Northern Ireland by over 3,000 police and civilian employees against the Police Service of Northern Ireland (PSNI) in relation to holiday pay being calculated by reference to ‘basic pay’ rather than by reference to ‘normal pay’ (which includes basic pay, overtime and various other allowances). The claims date back to when the Working Time Regulations 1998 (WTR) were first introduced. Employment law in Northern Ireland largely mirrors that of the rest of the UK but with some exceptions.

A tribunal upheld the claims and, in so doing, held that the decision in Bear Scotland v Fulton was wrong to find that a gap of three months or more would automatically break a ‘series of deductions’ for the purposes of a claim for holiday pay. The PSNI appealed and, as this was a case in Northern Ireland, it went straight to the Northern Ireland Court of Appeal (NICA) rather than the Employment Appeal Tribunal. Dismissing the appeal, the NICA held that a ‘series of deductions is not ended, as a matter of law, by a gap of more than three months between unlawful deductions nor is it ended by a lawful payment’. To hold otherwise would, said the court, lead to ‘arbitrary and unfair results’.

Other findings to emerge from the Court of Appeal decision include the following:

• In Bear Scotland the EAT held that EU leave is deemed to be taken first, followed by UK leave (the extra 1.6 weeks under reg. 13A of the WTR) and then contractual leave. Not so said the Court of Appeal. Workers are entitled to all leave from whichever source and there is no requirement for certain types of leave to be taken in any particular order. Applying the approach in Bear Scotland would, said the Court of Appeal, inevitably increase the chances of creating a break of three months or more between underpayments of holiday pay.
• Fixing an arbitrary reference period for the purposes of calculating holiday pay (12 weeks being commonly used) was incorrect. Instead the reference period should be determined by reference to each claimant and ‘be long enough to be representative of the claimant’s working pattern’. It is a fact-sensitive question. The Court of Appeal encouraged the parties in this case to agree ‘a pragmatic, administration-friendly method for calculating and paying “normal pay” based on averages taken over a rolling 12-month period immediately preceding the period of leave’.

The PSNI appealed to the Supreme Court.

Supreme Court decision

The appeal was unanimously dismissed.

The Supreme Court agreed with the NICA’s interpretation that the three-month gap rule could lead to unfair results and act against the legislation’s purpose of protecting workers from exploitation. It held that the NICA had been correct to find that each unlawful deduction was linked by the common fault that holiday pay had been calculated by reference to basic pay only. What constitutes a series is a question of fact that must be answered in light of all the relevant circumstances. A gap of more than three months between an unlawful deduction will not be fatal to all claims.

As to the other issues on appeal, the Supreme Court held that:

• annual leave is not taken in a particular sequence - all sources of annual leave (i.e. the four weeks deriving from EU law, the 1.6 weeks under the WTR and contractual leave) are indistinguishable, and
• reference periods when calculating holiday pay are a question of fact and it is not appropriate to use the number of calendar days in the reference period when calculating normal pay

Comment

This decision finally resolves the long-disputed ‘cut off’ for backdated holiday pay claims where such claims are pursued in the tribunal as unlawful deductions from wages. A period of three months or more between alleged deductions, or a lawful payment, does not act as a break to any series of deductions which limits prior (backdated) claims.

The greatest monetary impact of this decision will be felt in Northern Ireland where the PSNI reportedly owes many millions in holiday pay. The impact in the rest of the UK will not be quite as significant in light of the two-year backstop on unlawful deductions from wages claims, which is not applicable in Northern Ireland. While the legality of the two-year backstop was questioned by the ECJ in King v Sash Windows, the case settled before returning to the UK Court of Appeal so the two-year backstop remains.

Holiday pay is currently an area of focus for the government with consultations taking place on both reducing red tape on working time and holiday pay calculations for part-year and irregular hours workers.