The Supreme Court’s Landmark Ruling – Significant Implications For Backdated Holiday Pay Claims

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The Supreme Court’s Landmark Ruling – Significant Implications For Backdated Holiday Pay Claims

Key Contact: Claire Knowles

Author: Beth Gilbert

On 4 October 2023, the Supreme Court handed down its judgment in the holiday pay case of Chief Constable of the Police Service of Northern Ireland (and another) v Agnew and others [2023] UKSC 33. The judgment clarified that holiday pay claims can be brought even where there is a gap of three months or more between a series of holiday underpayments, as this does not automatically break the chain of a series. The judgment has resulted in thousands of police in Northern Ireland reclaiming 25 years’ worth of miscalculated holiday pay, amounting to a bill of approximately £30m.

Background

Tribunal claims were brought in Northern Ireland by over 3,000 police and civilian employees against the Police Service of Northern Ireland (PSNI), because they had been paid their basic pay while on annual leave without having regard to overtime and various other allowances i.e., ‘normal pay’ since 23 November 1998 (as required by the introduction of the Working Time Regulations 1998).

Claims of this nature can only be made in respect of a payment made in the three months before the claim was brought, unless the underpayment was part of a series, in which case the underpayments could be linked together, provided the claim was brought within the deadline for the last underpayment of the series. The Employment Appeal Tribunal in Bear Scotland Ltd v Fulton [2015] ICR 221 decided that underpayments could only be linked in a series if there was a gap of less than three months between each underpayment. However, the tribunal upheld the claims of the police and civilian employees, and, in so doing, held that the decision in Bear Scotland Ltd v Fulton [2015] ICR 221 was wrong to find that a gap of three months or more would automatically break a series of underpayments for the purposes of a claim for holiday pay. The PSNI was therefore required to pay out the miscalculated holiday pay for the full 25-year duration. The PSNI appealed this decision, and it ended up before the Supreme Court.

Supreme Court’s decision

The PSNI accepted that there had been underpayments but disputed the period for which they were entitled to recover, so the Supreme Court considered two sets of issues. First, whether the claim for underpayments could go back further than three months, and second, whether these underpayments were part of a series.

The Supreme Court held that the underpayments spanning 25 years were relevantly connected, and the fact that they were sometimes separated by a gap of more than three months did not break the series. Even though the underpayments were sometimes interrupted by lawful payments, that did not break the series either because the holiday pay was still incorrectly calculated by reference to basic pay, rather than normal remuneration, and to hold otherwise would produce unfair consequences. The Supreme Court has therefore upheld the decision and dismissed the appeal. This decision is binding in England, Wales, and Scotland as well as in Northern Ireland, and applies to all forms of payment in addition to holiday pay.

This decision puts holiday pay back in the spotlight and potentially increases the financial exposure for employers who have not calculated holiday pay correctly. However, the exposure is limited in the rest of the UK compared with Northern Ireland, as the Employment Rights Act 1996 (which is not applicable in Northern Ireland) provides a maximum two-year period within which claims for unlawful deductions from wages can be made. The greatest monetary impact of this decision will therefore be felt in Northern Ireland. Whilst the two-year backstop exists for the time being, it should be noted that its legality has been challenged in the European Court of Justice (King v Sash Windows). If you need advice on your approach to calculating holiday pay, or in relation to actual or potential back pay claims for holiday pay, please contact the Employment team at Acuity Law.

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