We finally have the long awaited judgment of the Supreme Court in the case of Chief Constable of Police Service of Northern Ireland v Agnew which considered the crucial question of whether a three month gap between underpayments would prevent a holiday pay claim being successful.
Officers and civilian employees of the Police Service of Northern Ireland had historically been paid their basic pay while on annual leave (i.e. without having regard to overtime and certain allowances). The employees issued claims for unlawful deductions from wages and underpayments of holiday pay on the basis that they should have been paid their “normal pay” (which includes overtime) during such leave.
The employer accepted that the holiday pay had been miscalculated and should have included overtime and allowances. However, the employer’s appeal was concerned with the extent of the remedy available to the employees, including how far back the claims reached.
The relevant legislation in Northern Ireland contained a provision (which mimicked the Employment Rights Act 1996) stating that claims for underpayments had to be brought within three months of an underpayment.
The exception to this was where the underpayments formed part of a series of payments, provided that the last underpayment in the series was not more than three months before the claim was brought.
In Fulton v Bear Scotland Ltd  UKEAT/0010/16/JW, EAT, the Employment Appeal Tribunal found that in order to fall within the three-month rule and count as a “series”, there would have to be both a sufficient factual and a sufficient temporal link between each underpayment. It was concluded that underpayments could only be linked in a series if there was a gap of three months or less between each underpayment. This meant that any gap of more than three months would “break” the series and put an end to how far back an employee could claim.
In the Agnew case, the Supreme Court asserted that if a series of deductions arise due to an employer's failure to fulfil its obligations regarding accurate holiday pay, and would have constituted a series if not for the mandatory three-month cut-off outlined in Bear Scotland, employees should have the ability to connect each deduction. Any other stance would result in unjust consequences.
The Court determined that the timeframe within which a claim can be presented spans three months from the date of the last payment. However, this three-month limit does not restrict or modify the definition of a "series" of deductions.
The classification of whether a claim involving two or more deductions is considered a claim for a series of deductions is fundamentally a factual matter. In addressing this query, all relevant circumstances must be considered, including the similarities and differences among the deductions, their frequency, size, and impact, the manner in which they occurred and were implemented, the connections between them, and any other pertinent circumstances. The temporal proximity of the deductions, whether they were more or less than three months apart, is no longer relevant moving forward.
In this case, the series was connected by the “common fault or unifying or central vice” of the employer in paying holiday pay without taking into account overtime or allowances.
There are wide practical implications for employers, as can be seen from the financial implications in the Agnew case. The decision has been estimated to come at a cost of approximately £30-£40 million.
However, the impact shouldn’t be overestimated. Where employers have already changed practices in terms of calculating holiday pay over the correct reference period and are now correctly paying holiday pay, for example, by factoring in allowances, overtime and commission, this decision will have low impact. But for other employers who have simply been monitoring this litigation without taking action and have been underpaying holidays, they will now face greater liability.
There is some good news though – in Great Britain, the Deduction from Wages (Limitation) Regulations 2014 impose a two-year limit on unlawful deductions claims brought after 1 July 2015. The regulations (which are not in force or replicated in Northern Ireland) will therefore limit exposure to back pay claims.
As a result of the Supreme Court’s judgement, employers should consider taking the following steps:
For more information, please contact Su Apps.