The Supreme Court has handed down its decision in an important case dealing with entitlement to statutory holiday pay and the question of whether a series of unlawful deductions in respect of holiday pay underpayments is broken by a three-month gap.
Chief Constable of Northern Ireland v Agnew and others [2023] UKSC 33
Facts of the case
This case was brought by a group of police officers and civilian employees working for the Northern Ireland police service. It is a claim for unlawful deductions from wages, on the basis that holiday pay had been calculated by reference to the claimants' basic salary, not including overtime pay. The claim was brought under provisions of the Working Time Regulations (Northern Ireland) 1998 and 2016, which are equivalent to the Working Time Regulations 1998 and implement the EU Working Time Directive (WTD).
The claim was upheld by an industrial tribunal and on appeal to the Northern Ireland Court of Appeal (NICA) in July 2019. The Court decided that under the applicable statutory provisions, a series of unlawful deductions were not broken by a gap of three months, as had been argued on behalf of the police force. In making this decision, the Court diverted from the conclusion of the Employment Appeal Tribunal in 2014 (Bear Scotland v Fulton) that a three-month gap between payments of holiday pay would operate to break the series of deductions.
The Court further held that statutory holiday entitlement under the WTD is not taken first, with additional contractual holiday only taken once the statutory entitlement is used up. An individual's holiday entitlement should instead be considered a "composite whole", with each day of leave consisting of entitlement from all sources.
The NICA decision was not binding on courts and tribunals in England, Scotland and Wales, only those in Northern Ireland. An appeal brought by the Chief Constable of Northern Ireland was heard by the Supreme Court in December 2022.
Supreme Court decision
In its judgment, handed down on 4 October 2023, the Supreme Court has unanimously upheld the NICA's decision.
The Supreme Court agreed with the NICA's previous ruling that a three-month gap between holiday payments did not operate to break the series of deductions. Where the unlawful deductions are due to an employer failing to properly to meet its obligations and, without the three-month cut off, they would otherwise constitute a series of deductions, the Court held that workers should be able to link the deductions. To hold otherwise would produce unfair consequences; the purpose of the legislation is to protect workers, some of whom might be vulnerable, from being paid too little for the work they do. What constitutes a series of deductions is a question of fact that must be answered in light of all the relevant circumstances. There is no legal requirement that leave derived from different sources must be taken in a particular order.
This decision means that the claimants can claim their underpaid holiday entitlement going back to 1998, when the entitlement to statutory holiday pay was first introduced.
The Birketts view
This Supreme Court decision is binding on all UK courts and tribunals. It will have potentially costly consequences for employers who are not already paying workers their full holiday pay entitlement, calculated by reference to their 'normal pay' including additional elements such as overtime and shift allowances.
Employers will no longer be able to limit liability on the basis that there has been a three-month gap between periods of holiday, or on the basis that a period of contractual holiday taken after they have exhausted their entitlement to statutory holiday also operates to break the series of unlawful deductions.
This is likely to have particular consequences for employers in the gig economy and sectors engaging temporary staff who are not being paid correctly for their holiday entitlement. It will also have a broader application to other types of underpayments, if they can be categorised as a series of deductions. However, claims must still be brought within three months of the last deduction.
Note that under the provisions of the Deduction from Wages (Limitation) Regulations 2014, claims for unlawful deductions brought in England, Wales and Scotland since 1 July 2015, including for underpaid holiday pay, are restricted to a maximum period of two years' backdating. This will go some way to limiting potential back payments in the event of a successful claim.
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