Holiday pay claims – Three-month gap does not break a series of deductions

In the case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (Northern Ireland) [2023], the Supreme Court has held that a three-month gap in a series of deductions for underpaid holiday pay does not automatically break the chain of deductions, if the deductions are factually linked to the same underlying cause. As a result of the decision, more than 3,700 employees will be paid for their underpaid holiday pay dating back to 1998 and amounting to more than £30m.

Schools should be aware of the decision, particularly as it will have implications for all unfair deduction from wages claims, not just those relating to holiday pay.

Facts

The claimants were police officers and civilian staff working for the Police Service of Northern Ireland (PSNI). In 2015, they brought claims against PSNI for underpayment of holiday pay claiming that, since 1998, their holiday pay had been calculated based on their basic pay only during periods of annual leave and had not taken into account the overtime that they regularly worked, as well as other allowances. They argued that the additional payments formed part of their “normal pay”.

PSNI accepted that the employees had been underpaid during periods of holiday. As well as a dispute about the right of police officers to claim underpayments going back further than three months, a key issue was whether the underpayments were part of a “series” of deductions.

In 2018, a tribunal upheld the claimants’ claims going back to November 1998. The PSNI appealed to the Northern Ireland Court of Appeal (NICA). NICA held that a series of deductions would not necessarily be broken by a gap of three months or more, provided the deductions were from a common fault – the fault in this case being that holiday pay had been based on basic pay alone rather than normal pay.

This departed from the decision of the Employment Appeal Tribunal (EAT) in Bear Scotland v Fulton [2015], where it was held that a gap of more than three months in a series of deductions will break the chain, and as such the payments before the gap will be time-barred.

PSNI appealed the decision to the Supreme Court.

The Supreme Court dismissed the appeal and held that the EAT’s decision in Bear Scotland was wrong. It was decided that what constitutes a series is a question of fact and must be answered in the light of all relevant circumstances. The Supreme Court held that a gap of more than three months in a series of deductions does not necessarily break that series, provided the deductions are linked by the same underlying cause. This means that claims for deductions from wages can be brought even where there is a gap of more than three months between deductions in a series.

The Supreme Court also held that it cannot be assumed the first four weeks of a worker’s holiday constitutes their statutory entitlement under the Working Time Regulations but rather, annual leave entitlement is to be looked at as a whole, forming part of one single composite pot.

Guidance for schools

Whilst this is a Northern Ireland case, the Supreme Court decision is still binding on employers in Great Britain. However, unlike in Northern Ireland, claims for unlawful deduction from wages in Britain can (currently) only be backdated for up to two years from the date of the claim. Therefore, the implications are unlikely to be as significant for employers based in Great Britain – although the Supreme Court decision may lead to increased challenges of the two-year back stop. Claims must be brought within three months from the date of the last deduction.

The Supreme Court decision has been much anticipated and may result in an increase in the number of queries and/or claims relating to holiday pay over the coming months.

We therefore suggest that schools review their internal holiday pay practices to ensure that workers are paid their “normal pay” during holidays, and not just their basic pay and seek legal advice if any potential issues are revealed.

Schools are also advised to keep track of proposed changes to holiday pay and entitlement more generally, particularly in the light of the Government consultation following Harpur Trust v Brazel, to ensure that their holiday practices remain legally compliant.

We will continue to keep schools updated on this.