In Fulton and another v Bear Scotland Ltd (No 2), the Employment Appeal Tribunal (EAT) has recently confirmed that a gap of more than three months between non-payment or underpayment of holiday pay breaks a series of deductions for the purposes of unlawful deductions from wages claims. Where claims for underpaid holiday pay are brought under the unlawful deductions from wages provisions, they must be submitted within three months of the last 'in a series of deductions' (Section 23, Employment Rights Act 1996). This phrase is not defined in the legislation.
In the earlier case of Fulton and another v Bear Scotland Ltd (No 1), the EAT had ruled that Bear Scotland had made unauthorised deductions from the claimants' wages since it had excluded various overtime and other supplemental payments from the calculation of their holiday pay. The EAT also held that a gap of more than three months between deductions will break the series of deductions, since a period of more than three months is generally regarded as too long to wait before making a claim. This finding limited the scope for workers to make substantial retrospective claims for underpaid holiday. The case was remitted to the Employment Tribunal which held that the majority of the employees' claims were out of time since the underpayments of holiday were interspersed with periods of at least three months during which no deductions occurred because no holiday was taken.
The claimants then appealed to the EAT (Fulton and another v Bear Scotland Ltd (No 2)), arguing that the previous EAT decision in relation to the three month gap was not binding on the Employment Tribunal, because it had only created a strong, but rebuttable, presumption that the claim was time-barred rather than a universal rule. However, the EAT has now dismissed this appeal, ruling that the three month gap ruling was binding precedent.
Subject to any appeal, this decision means that Employment Tribunals must now rule that a gap in a series of deductions of more than three months breaks the chain for holiday pay and any other claims for unlawful deductions from wages. Since most employees will have a period of three months or more when they do not take holiday and therefore do not receive any holiday pay, the potential liability of many employers in holiday pay claims has been significantly reduced. Claims are further restricted by the Deductions from Wages (Limitation) Regulations 2014 which introduced a two year backstop period for most unlawful deductions from wages claims brought on or after 1 July 2015.
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