The Supreme Court has made an important decision that could see some businesses that underpay holiday pay facing greater financial exposure.
It’s been ruled that holiday pay claims can be brought where there is a series of unlawful deductions even if there are gaps of three months or more between periods of underpayment.
The decision in Chief Constable of Police Service of Northern Ireland v Agnew is relevant to employers across the UK and will be of interest to many businesses. So, what four key things do you need to know?
- Background and the decision
- Two-year ‘backstop’ on deductions
- What to do if your business receives a complaint
- What to do if you are concerned about holiday pay
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1. Background and the decision
In brief, a number of police officers and civilian staff brought claims about underpaid holiday going back a number of years.
Their employer had paid them basic pay only when they took holiday, whereas under case-law they should have been paid their “normal pay” for holiday taken under the EU Working Time Directive.
This ought to have included an element for overtime because many of the employees regularly supplemented their pay by working compulsory overtime.
Whilst the employer accepted that the employees were underpaid when they took holiday the issue was how far back the employees were entitled to go with their claim to recover the underpayment.
The employees argued that they were allowed to claim underpayments which arise from a series of payments, provided that the last underpayment in the series was not more than three months before the claim was brought before the Tribunal.
However, a previous Employment Appeal Tribunal decision in Bear Scotland v Fulton had held that deductions could only be linked in a series if there was a gap of three months or less between each deduction, limiting an employer’s exposure. In Northern Ireland, the Northern Ireland Court of Appeal felt that this wasn’t the case, and the Supreme Court has now made its decision.
It’s been held that employees can claim for historic underpayments of holiday pay even if there are gaps of more than three months between deductions.
Whilst claims will usually still need to be brought within three months of the last of the series of deductions what this decision means for businesses is that employees in some circumstances now have more scope to link together deductions than previously.
This could prove more costly for businesses. It’s reported that the employer in this case has gone from facing a holiday underpayment cost of £300,000 to £30 million.
Whilst many holiday underpayment claims don’t involve such eye-watering sums, it’s important for all businesses to make sure they don’t inadvertently find themselves falling foul of the law.
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2. Two-year ‘backstop’ on deductions
In England, Wales and Scotland (unlike Northern Ireland) the government introduced a two-year limit to how far back most unlawful deductions from wage claims can go.
3. What to do if your business receives a complaint
If an employee in your business makes a complaint about an underpayment of holiday pay, it will be important to address it promptly and appropriately.
In many cases, this will often involve following your business’s formal grievance process.
If you receive a complaint about holiday pay or any other workplace matter, you should get in touch for specific advice on the facts of your situation before taking action.
4. What to do if you are concerned about holiday pay
Holiday and holiday pay entitlements can be complicated, it’s one of those areas that we are often asked about. If something is bothering your business or you have a question, please reach out as we are here to help.
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