The latter part of 2023 was a busy old time for holiday pay. In October, the Supreme Court released its long-awaited judgment on the meaning of a ‘series’ of deductions. Then, in November, the Government introduced draft regulations dealing with statutory holiday entitlement reform.
Historic holiday pay claims – a ‘series’ of deductions
In October, the Supreme Court released its judgment in the Chief Constable of the Police Service of Northern Ireland v Agnew (‘Agnew’) case, and it is now clear that a gap of three months between underpayments of holiday pay does not automatically break the chain of a series of deductions. If the underpayments are factually linked, the net can be cast much further back (subject to the two year back-stop).
Facts of the case
This case involved police officers and civilian staff working for the Police Service in Northern Ireland (‘PSNI’). The Claimants brought claims against the PSNI relating to underpaid holiday pay, going back as far as 1998. Their holiday pay had been calculated by reference to their basic pay only and had not included overtime. Although it was accepted by the PSNI that overtime should have been included and they had therefore been underpaid, the dispute related to how far back the Claimants could go with their claims. The PSNI argued that the police officers could not claim back to 1998, as they could not establish there had been a ‘series of deductions’, and the claims were therefore limited to the sums underpaid in the last three months before the claims were brought.
The law
By way of background, if an employee has not been paid the correct rate of pay for holiday, they can pursue an unlawful deduction from wages claim. There is a strict time limit to pursue a claim of three months (less one day) from the date of an underpayment. The Tribunal can allow for claims to be brought for deductions going back over time, provided that they formed part of a ‘series’ of deductions. Up until now it was generally understood that to be considered a series of deductions, there could not be a gap of more than three months between the deductions (i.e. the underpayments). Where a claim was pursued for unpaid holiday pay, this would mean, where there was a gap between receiving holiday pay of more than three months, the series of deductions would be broken.
For an unlawful deduction from wages claim, there is also a two-year back-stop date, which limits the compensation to a maximum of up to two years. However, the Deduction from Wages (Limitation) Regulations do not apply in Northern Ireland – which is why the Claimants in this case were claiming for back-pay to 1998.
The decision
The Supreme Court found that the fact that there were more than three months between deductions did not prevent them from forming a series. The Court assessed the meaning of the word ‘series’, which it found depended entirely on the context rather than being limited to a gap of three months.
When determining whether or not a claim in respect of more than one deduction correctly constitutes a series of deductions, this is a question of fact for the Court or Tribunal to determine. This should be done by reference to all of the circumstances of each individual case, taking into account the similarities and differences in the deductions, the frequency, size and impact of the deductions, how the deductions were made, and what links them together. It is not necessary for there to be a specific pattern, and the fact that there may be more than three months between the deductions does not prevent them from being linked for the purpose of bringing a claim.
What does this mean for employers?
This judgment doesn’t change the law on the amount of holiday pay to be paid. However, it does means that an employee may now be able to claim back for previous non-payments if they can show that these formed a ‘series’ of deductions on the facts even if there is a gap of more than three months between them.
However, remember that employees in England and Wales can only claim up to two-years’ backpay due to the limitation.
Retained EU Law and holiday pay
Background
A UK worker is entitled to 5.6 weeks’ holiday per year. This is made up of 4 weeks’ holiday under the Working Time Directive (EU leave) and 1.6 weeks additional UK leave under Working Time Regulations (UK leave). EU and UK leave are subject to different rules as to the calculation of holiday pay, and since 2011, case law has developed which provides that EU leave must be paid as ‘normal remuneration’ (i.e. it should include commission, overtime etc that’s normally paid); whereas this does not apply to the additional 1.6 weeks UK leave.
Future changes
On 8th November 2023, the Government announced its response to the two public consultations on statutory holiday entitlement reform, and published draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (ER Regulations). The ER Regulations came into force on 1st January 2024 (and will apply to holiday years starting on or after 1st April 2024). Key points to note are:
- The Government has decided that it will not amalgamate the 4 weeks EU leave and 1.6 weeks UK leave into a single entitlement “at this time”. This would only have been beneficial if the Government intended to create a single rate of holiday pay for the combined right, which it has now decided not to do. Payment for the 4 weeks’ leave will continue to be paid at ‘normal’ pay and payment for the additional 1.6 weeks will continue to be based on basic pay only, although for logistical reasons employers may decide to pay normal pay for all holiday entitlement.
- What amounts to ‘normal’ pay has been determined by case law, and since retained EU case law will no longer be binding in the UK after 31st December 2023, the ER Regulations has codified the law in legislation. The statutory pay for the 4 weeks’ leave will continue to be calculated in the same way as it is now and will include:
- Payments intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out, such as commission.
- Payments for professional or personal status relating to length of service, seniority or professional qualifications.
- Payments such as overtime payments, which have been regularly paid to the worker in the 52 weeks preceding the calculation.
- There will be new defined categories of ‘irregular hours workers’ (whose contractual hours are wholly or mostly variable) and ‘part-year workers’ (workers who work part of the year only, including term time and peripatetic workers). These categories of workers will be entitled to accrue 5.6 weeks holiday each year at the rate of 12.07% of the number of hours they have worked in the previous pay period.
- There will be a right for employers (if they choose) to implement a system of rolled-up holiday pay for irregular hours and part year workers, where holiday pay is paid as an uplift of 12.07% to the normal rate of pay at the time work is done, instead of being paid at the time holiday is taken.
The government has just released new guidance to cover these latest holiday pay and entitlement reforms. Holiday pay and entitlement reforms from 1 January 2024 – GOV.UK (www.gov.uk)
This is only intended to be a summary and not specific legal advice. If you would like further information or advice, please do contact a member of our team.
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