Holiday Pay Claims – Supreme Court’s Landmark Ruling

The UK Supreme Court has ruled that employees can claim for a series of underpayments of holiday pay, even where there has been a gap of more than three months between different underpayment periods. This could lead to many UK workers being entitled to thousands of pounds in miscalculated holiday pay.

In the case of Chief Constable of Police Service of Northern Ireland v Agnew, the Claimants were police officers and civilian staff working for the police in Northern Ireland who brought claims that they had only been paid their basic pay during annual leave, rather than the required average rate of pay including overtime. The employees succeeded in their claims, but a question which then arose was how far back the employees could claim in respect of this underpaid holiday pay.

The provisions of the relevant Northern Irish legislation regarding claims for wages (which mirrors the legislation in England and Wales) made it clear that a claim for underpayments (also known as deductions from wages) could only be made in respect of a deduction payment made in the three months before the claim was brought, unless that deduction was part of a series of deductions, in which case the deductions could be linked together provided that the gap between any deduction was no more than three months and the claim was brought within three months of the date of the last deduction. This gave employers assurance that if there was a gap of more than three months between each underpayment, or there had been a correct payment in-between these underpayments, that would effectively limit the time that an employee could seek to bring a claim over; and would therefore limit the value of the claim.

However, the above case has changed all of this. The position is now that there no longer needs to be less than three months between each deduction for it to count as a series of deductions. In addition, the fact that an employer makes a correct payment in-between will no longer break the series either.

Although this case was about holiday pay, the claims were brought under the laws on unlawful deductions from wages. Therefore, the same principle will likely apply to other types of case where an employer has regularly underpaid an employee on the same basis or for the same reason each time.

The Supreme Court concluded that the period during which a claim can be brought is three months from the date the last payment was made, but that this three-month limit does not restrict or qualify the meaning of a “series” of deductions.

However, it should be remembered that the impact of this Judgment is mitigated for employers by the fact that claims for unlawful deductions from wages are limited by statute and can only go back over a maximum period of two years.

In practice, most employers do now pay employees their holiday pay based on average earnings, taking into account “extras” such as overtime, commission and bonuses. However, for any employers who are still paying employees with variable earnings basic pay only for their holidays, this decision potentially increases the amount of compensation their employees may be able to recover with most employees bringing these types of claims now able to recover up to two years' worth of losses.

And whilst the above case concerning legislation in Northern Ireland, as there are identical provisions in the laws of England, Scotland and Wales, the decision affects all UK employers.

What can employers do?

Head of Employment Law, Katie Ash, confirms “this is a landmark case and one that will have a significant impact on how employers calculate and manage holiday pay for their workers. As a result, we are likely to see more retrospective claims on holiday pay that have been miscalculated”.

Katie offers this advice to employers:

• take time to review and evaluate holiday pay practices
• review and seek advice on employment contracts, holiday pay and holiday practices to determine whether you have been paying "normal remuneration" for all staff whilst they are on holiday
• where normal remuneration has not been paid for holiday leave then you should seek legal advice on how to regularise the position and reduce the size of holiday pay claims to avoid expensive back pay claims
• keep up to date with changes in this area of law

Our expert Employment Law team are here to help you, please contact us today at employment@bannerjones.co.uk