Posted: 05/10/2023
The Supreme Court has this week given its judgment in the long-running case of Chief Constable of the Police Service of Northern Ireland v Agnew. Dismissing the employer’s appeal, the court found that a ‘series’ of unlawful deductions from wages will not necessarily be broken by a gap of three months or more. This potentially exposes those employers who may have historically underpaid holiday pay to liability for claims. The Supreme Court’s judgment also ensures a consistent approach to this issue across the UK, with the Agnew case having originated in Northern Ireland, and being in conflict with an English decision on the same point.
Case law has established that holiday pay under the Working Time Directive cannot be calculated on basic salary alone, but must take into account a worker’s ‘normal remuneration’, including, for example, overtime or commission payments. Failure to do so could deter workers from exercising their right to annual leave under the directive.
Claims for underpaid holiday can be made under regulation 30 of the Working Time Regulations 1998, or as a claim for unlawful deductions from wages under the Employment Rights Act 1996. In the latter case, claims must be brought within three months of the last in a ‘series of deductions’. However, in the case of Bear Scotland Ltd v Fulton and other cases, the Employment Appeal Tribunal (EAT) found that a series would be broken where a period of more than three months had elapsed between the individual deductions.
This would mean, for example, that if a worker had not taken any annual leave for a three-month period, they would lose the right to claim for any previous underpayments. Employers could also break the chain of deductions by making a correctly calculated payment, thus making it more difficult for workers to make claims in respect of previous underpayments.
In Agnew, almost 4,000 police officers and civilian staff brought claims for underpayment of holiday against the Police Service of Northern Ireland (PSNI) and the Northern Ireland Policing Board. Their employer admitted that it had been incorrectly paying holiday pay since the implementation of the Northern Ireland Working Time Regulations in 1998, by calculating holiday pay based on basic salary only.
An industrial tribunal upheld their claims, and the decision was appealed to the Northern Ireland Court of Appeal on various grounds, including whether the EAT in the Bear Scotland case had been right to say that a gap of over three months, or a lawful payment, breaks the series of deductions. The Court of Appeal dismissed this, and subsequently the PSNI made a further appeal to the UK Supreme Court.
The Supreme Court found that the UK case of Bear Scotland was wrongly decided and that a series of unlawful deductions will not necessarily be broken by a gap of more than three months or more, provided that each underpayment is factually linked to its predecessor by the same underlying cause (in this case the incorrect calculation of holiday pay).
This case is particularly significant for those employers who remunerate employees not just with basic salary, but with other elements such as commission or overtime payments; for example, those in the manufacturing, health and social care, and sales industries. Although workers will still need to show that there has been a ‘series’ of deductions, this decision potentially paves the way for significant claims for underpayments, and a number of cases that have been stayed pending this decision will now be reopened.
In the Agnew case, the PSNI has estimated that the costs of its holiday pay claims could increase from £300,000 to £30 million. It should be noted that in Great Britain deductions from wages claims from July 2015 are limited to two years’ back pay, under the Deduction from Wages (Limitation) Regulations 2014. These regulations have no equivalent in Northern Ireland and therefore employers in Northern Ireland could face higher claims.
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