Does a gap of three months or more between underpayments of holiday pay prevent an employee bringing an unlawful deductions of wages claim for earlier underpayments?
No, ruled the Supreme Court in the recent decision of Chief Constable of the Police Service of Northern Ireland v Agnew [2023].
Facts
Claims were brought by a number of police officers and civilian staff (the claimants) in Northern Ireland, (the Agnew case) to recover sums they claimed were due as holiday pay dating back to November 1998.
Their employer had thought it was sufficient to pay their holiday pay at their basic rate of pay, but later case law from both England and the Court of Justice of the European Union had ruled that annual leave taken (under EU Working Time Directives) should be paid at “normal” pay not just basic pay, and that normal pay could include overtime and other allowances when calculating what average normal pay was.
For the claimants in the Agnew case normal pay was therefore to include elements for overtime as they regularly supplemented their income by working compulsory overtime.
Although the Chief Constable of the Police Service of Northern Ireland (CCPSNI) - the employer of the claimants - accepted the claimants had been underpaid when they took their holidays – the issue in dispute between them was how far back they could claim underpayments of wages (here holiday pay) for.
CCPSNI tried to rely on the provision that a claim before the tribunal could only be made in respect of payments due in the three months before the claim had been raised - so the majority of the monetary claims would be time barred.
The claimants relied on a different statutory provision allowing them to bring claims for underpayments arising from a series of underpayments, provided the last in the series was not more than three months before the claim was brought to tribunal. This article will focus on the issue between the parties of whether the underpayments were part of a “series” of deductions.
Earlier case law (Bear Scotland v Fulton, an English Employment Appeal Tribunal (EAT) decision of 2014) had ruled that a gap of three months or more between two payments of holiday pay (which were unlawful deductions of wages) or if a correct lawful payment was made between unlawful deductions payment, could break a series of deductions for the purposes of a claim for holiday pay by way of an unlawful deduction from wages claim.
The original tribunal hearing in the Agnew case had ruled the decision in Bear Scotland was wrong in regard to that gap breaking a series of deductions, and so the employer appealed to the Northern Ireland Court of Appeal (NICA). It dismissed the appeal and the employer then appealed to the Supreme Court.
Law
Although this case dealt with Northern Irish legislation, that mirrors other UK legislation in its terms where it deals with unlawful deductions from wages. The relevant law in England, Wales and Scotland is derived from section 13(3) of the Employment Rights Act 1996 which sets out:
Right not to suffer unauthorised deductions.
(3) Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker’s wages on that occasion.
Decision
The Supreme Court also dismissed the employer’s appeal, agreeing with the NICA’s findings.
The Supreme Court noted the purpose of the provisions regarding unlawful deductions is to protect workers, some vulnerable, from being paid too little for the work they do.
In its view the word ‘series’, not being defined in the legislation, was a question of fact and meant having to examine all relevant circumstances including the deductions’ similarities and differences, their frequency, size and impact, how they came to be made and applied and what links them together.
Further, that a contiguous sequence of deductions of a particular kind was not required to form a series. It mattered not that the interval between the holiday payments were from time to time in excess of three months and those intervals did not of themselves break the series or bring it to an end, nor did a lawful payment of holiday – the underpayments were still linked to their predecessors by the common fault that holiday pay had been calculated by reference to the basic rather than normal pay.
It stated that to deny workers the sums which they ought to have been paid was “antithetical to the purpose of the entitlement to paid leave, which is to ensure that they take the holidays they need to maintain their health and wellbeing”. It also agreed with the NICA that the correct method, pragmatically, for calculating holiday pay was by using the number of working days in a month rather than calendar days and the calculations were to be based on a 12-month reference period.
Comment
Katherine Irvine, Associate in our Employment team comments:
“This Supreme Court decision is a significant one for employers in the UK. It is the final court of appeal for civil cases in the UK, so cannot be appealed further.
"The outcome will have wide ranging impact for those in Northern Ireland as it will mean anyone working there who has been underpaid for holiday can potentially now make claims going back to 1998 when the Working Time Regulations in relation to annual leave entitlement were introduced.
"The situation is a little different in the rest of the UK, as claims for unlawful deductions of wages can only be for a maximum period of two years’ worth of such deductions. This is because amendments to the Employment Rights Act 1996 were made in 2014, to impose that two-year backstop. However, this still means claims of significant value can however be brought for that 2-year period, and that the 3 month gap many employers previously relied upon to argue there had been a break in a series of deductions is now no longer relevant.
"I recommend that employers who have not yet done so take time to evaluate their holiday pay calculation practices and audit any areas of potential risk of claim where there has been previous payment of holiday pay at basic pay only.
"It is necessary to ensure account is taken of all aspects of ‘normal pay’, including overtime and commission when calculating holiday pay, although this has been the case for some time now and many employers will have already conducted such an evaluation of their calculation practices and made the necessary changes. As such the Agnew decision should have relatively limited impact on those employers.
"Tribunal claims for unlawful deductions from wages must still be brought within three months less one day of the last underpayment in any series, so claims brought after that could be argued as time barred.”
