18 September 2019

Holiday Pay Update: How far back can employees claim?

Chief Constable of Northern Ireland Police v Agnew

Takeaway

Holiday pay remains a difficult issue for employers, especially those whose employees work irregular hours or have paid overtime.

When faced with a holiday pay, the first question from the anxious employer is usually: how far back can the employee claim? Sadly, this has often been unclear. Following Chief Constable of Northern Ireland Police v Agnew, it seems likely that, in Great Britain at least, the answer will be two years. In Northern Ireland, the answer could be ‘back to 1998.’

Legal Background

Since they came into force in 1998, the Working Time Regulations have provided a steady stream of cases arguing over how much employees should be paid for holiday and when it is due. In June, the Court of Appeal confirmed that voluntary overtime generally needs to be included in holiday pay, which may lead to another surge in holiday pay claims.

Employees make claims for holiday pay as ‘unlawful deductions’ from their wages. They can make a claim within three months of the last of a series of deductions.

However, in the case of Bear Scotland, the Court held that gaps of more than three months broke the ‘series’. What this meant in practice was that a lot of employees could not bring claims running back over long periods, as at some point most of us go three months without taking holiday.

A new case in Northern Ireland has now thrown this argument into question. Northern Ireland is a separate jurisdiction to England and Wales, so the decision does not automatically become law here. However, it is likely to be followed by an English Court if the same question reaches them.

Facts

Over 3,500 police officers and civilian employees brought claims for underpayment of holiday pay against the police in Northern Ireland. They had been paid for holiday at basic rate, excluding overtime and various allowances. Following Court rulings on inclusion of overtime, the claimants wanted their holiday pay recalculated to include these. Some of the claims from long-serving staff stretched back to 1998.

The Court of Appeal in Northern Ireland allowed the claim, in a decision which may have cost the Northern Irish police £30 million. The Court held that a gap of three months between deductions from holiday pay will not break a ‘series of deductions’ for the purpose of a claim.

Employers in Great Britain are in a better position than Northern Ireland, as legislation here expressly caps the length of the series at two years in most cases. But the case still marks a potentially significant increase in exposure for unpaid holiday pay.

Top Holiday Pay Tips

  • Review what payments you are including in holiday pay. Are you including everything you should be? We can work with you to advise on difficult scenarios.
  • If you discover underpayment, take advice on how to rectify the situation. In some cases it will be better to simply pay out the whole balance, whereas in others this may not be viable and you may prefer to keep changes low key and hope to minimise claims.
  • It is proposed that, in March 2020, the reference period for calculating holiday pay will change from the average over 13 weeks to the average over the last year. Can your systems cope with this change? Plan how you will implement the change and how you will communicate to employees.

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About the Author
Rachel Parkin, Partner

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