A landmark case for holiday pay: How to reduce any potential liability as an employer

Written by Joanna Robson, employment law solicitor of Pickerings Solicitors 

The recent case of Chief Constable of Police of Northern Ireland v Agnew concerning the payment of backdated holiday pay has identified the need for employers to be careful when calculating holiday pay for their employees. 

This case concerned members of the police in Northern Ireland who brought claims against the force for periodic unpaid holiday pay dating back as far back as 1998. 

The force accepted that holiday pay had been miscalculated as it had only calculated the same on basic pay and had failed to include regular overtime pay in the calculations. 

The Force argued that the members could not claim back such underpayments to 1998 as such claims were restricted to a three-month time limitation period before the claims were brought. 

The Northern Ireland Industrial Tribunal upheld the members’ complaints and awarded them unpaid holiday pay dating back to 1998. 

The claim was subsequently appealed to the Supreme Court, which also upheld the members’ claims that the underpayment of holiday pay should be backdated to 1998. 

It should be noted that the underpayments were periodic and there were periods when holiday pay was calculated correctly and times it was not. 

This case focuses on a situation where an employee is claiming for a period of unpaid holiday pay or wages and is looking to claim a “series of deductions” over a prolonged time period.  In this case, the time period extended back to 1998.

The Force argued that a series of deductions is broken where there were gaps of more than three months’ between the underpayments claimed and where correct payments of holiday pay had been paid to the employees. 

This recent case highlights how employees can now claim back for previous non-payments of holiday pay, even with gaps of longer than three months, if they can show that such non-payments formed a “series of deductions”.   

It is no longer open to an employer to suggest that an employee is time-barred from bringing such claims. 

What is meant by a series of deductions as cited in the Agnew case? 

The Supreme Court ruled that the purpose of a “series of deductions” was to protect workers from being underpaid and from having to bring repeated claims within three months’ after every time an unlawful deduction was made.

In this recent case, each unlawful deduction amounted to the same issue, namely that the holiday pay had been miscalculated and had not included the overtime pay.  

How does this affect the UK? 

Under the Laws of England and Wales, there is specific legislation which states that where an employee claims for a series of deductions of holiday pay or wages, there remains a backdated limit of two years on such claims. 

This, in essence, prevents an employee from being able to claim unpaid holiday pay or wages spanning any longer than two years. 

This Supreme Court case has not changed this time limitation on unlawful deduction claims (both holiday and wages) and the two year long-stop for such claims brought in the UK remains in full force and effect, which will be relief to employers when taking into account that the Force had to back-pay underpayment of holiday to its members dating back to 1998 in this case.  

What does this mean for employers?

It is important for employers to address and document their holiday pay calculations to ensure workers and employees receive holiday entitlement based upon normal pay, which includes overtime pay and other regularly paid remuneration such as commission and allowances.

In light of this recent case, there is potential significant liability for employers who have miscalculated holiday pay or only calculated the same on basic pay.   

However, any such claim brought in the UK imposes a two year limit on unlawful deduction claims. 

It is also important to note that this case decision is not only limited to underpayment of holiday but also to unlawful deductions of wages claims meaning the three-month gap between underpayments or non-payments falls away following the Supreme Court’s ruling. 

It is therefore important for employers to ensure that remuneration for all of its workers and employees is calculated correctly. 

Employers should be aware of government proposals to overhaul the annual leave entitlement for workers and employees in the UK. 

This includes combining European leave and UK leave to create a universal entitlement to annual leave. 

What steps should I do as an employer to remain compliant? 

It is vital to complete a review of your holiday pay calculations to ensure that overtime, commission and other similar remuneration is included. 

It would also be advisable to audit how your holiday pay and wages have been calculated historically and whether there are any periods of underpayment which could lead to potential liability.  

Employees are still jurisdictionally restricted to bringing proceedings within three months’ of the last act of unlawful deduction of wages or an underpayment of holiday so by prioritising a review and ensuring the correct calculation of holiday pay is being applied, this minimises the risks of claims being brought.

If you have any questions on this landmark decision or if you have any questions on any other employment law matter then please contact our employment law team at Pickerings Solicitors who would be more than happy to assist. 01827 317070 mail@pickerings-solicitors.com

The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.