Let’s look broadly at what the recent Supreme Court Case of Chief Constable of the Police Service of Northern Ireland v Agnew ruled on and its effect on holiday pay/unlawful deduction claims against employers.
Issues in this case that affect employers
- The Agnew case recently overruled existing principles that applied in cases where employees claimed unpaid / incorrectly paid backdated holiday pay from employers.
- These now overruled principles were as follows: When an employer had failed to either a). pay at all; or b). pay holiday pay correctly - employee claims for the backdated holiday pay could be out of time or reduced if there had been:
- a gap of 3 months from the last non-payment/incorrect payment; or
- a correct / lawful payment – that would stop the clock/sequence and thus, potentially mean claims are out of time sooner; and/or
- also another technicality applied – where the EU law-derived (20 days) holiday leave was deemed to have been taken first, the next 8 days holiday leave (under the working time regulations) then applied, again, potentially meaning time limit issues for employees/workers, which in turn, also helped employers defend such claims.
- The above technical arguments, frankly, rescued many employers from huge backdated holiday pay liabilities, for example, where they had innocently albeit incorrectly miscalculated holiday pay.
- Remember that holiday pay is not simple. Recent case law has developed to require employers to include things like overtime and/or certain types of bonus and commission income too – and remember claims can go back up to two years (longer in NI).
What did the Supreme Court say in Agnew and how will it affect employers and holiday pay claims?
The Agnew case argued that Police Officers’ pay should not have been paid at basic pay, it should have included overtime pay too, in accordance with the wider established case law principles noted above. Therefore, that they had suffered a series of deductions in the form of underpayments of holiday pay.
The Supreme Court held as follows:
- The gap of 3 months or a correct payment does not necessarily break a series of deductions – they will look at the connection / overall sequencing of incorrect payments.
- There was no strict order in which the leave should be taken and that all the EU Directive and the WTR leave and any additional contractual leave, are all looked at as a whole - not as a sequence in such order.
- What constitutes normal remuneration and thus, the value of holiday pay and calculation of the days and pay will be a question of fact in each case.
So, what now?
- It will now be a lot easier for workers and employees to bring claims for as far back as two years’ worth of incorrect or non-payment of holiday pay (longer in NI).
- Correcting the error in payment won’t necessarily stop the series and limit the claims – it will still help.
- A series of deductions doesn’t have to be perfectly sequential or continuous – it’s a question of fact in each case.
- Reference periods (i.e. days used, working days or calendar days) and what was to be included in ‘normal remuneration’ - both of which have a major impact on the values and outcomes in such cases – should be a question of fact in each case.
The case cost the employer £30M in fully backdated holiday underpayments – so check in with us and make sure you are indeed calculating holiday pay correctly.
There are still strategies to use to protect your business and they are even more important after this ruling.
What to do now?
- Are you sure you are paying the correct rates for holiday pay?
- Are you keeping accurate records of the way in which you calculate and pay?
- Are you separating out any enhanced contractual holiday pay so that you can indeed deal with that separately too?