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UK: Holiday Pay: Claim for Series of Deductions Succeeds in Northern Ireland

Authors: Charlie Urquhart, Ruth Bonino and Sophie Jackson

3,300 police officers and 364 civilian employees filed claims against the Police Service of Northern Ireland and the Northern Ireland Policing Board (the PSNI) for arrears of underpaid holiday pay dating back to November 1998. The PSNI admitted that holiday pay had been incorrectly based on “basic pay” instead of on “normal pay” which included overtime as required by European case law. However, the PSNI disputed the period over which the claim could be backdated, relying on Northern Ireland regulations which restricted claims to a period of 3 months before the claims were lodged.

The claims were for unlawful deduction of wages. Civilian staff were able to bring their claims under Employment Rights (Northern Ireland) Order 1996 (the Northern Ireland equivalent of identical provisions in the Employment Rights Act 1996 which apply to Great Britain).  Under those rules, each time a worker takes holiday but is unpaid or underpaid, they are entitled to bring an unlawful deduction of wages claim, and where there is more than one deduction, they may bring a claim in respect of the series of deductions (each non-payment or underpayment being one unlawful deduction in a series). The first issue for the Court to decide was whether police officers were also entitled to claim in respect of a series of deductions. The Supreme Court found that they could and so their claims were not limited to the period of 3 months leading up to the lodging of their claims.

The second issue was how far back their claims could go. A key part of PSNI’s defence was to rely on the decision of the EAT in Bear Scotland v Fulton 2015 which found that the claims for unlawful deductions were “broken” by a gap of three months between such deductions. The Supreme Court disagreed with PSNI on this point, disapproving of Bear Scotland. It found that PSNI had made a series of unlawful deductions, each being factually linked to its predecessor by the common fault or unifying or central vice that holiday pay had been calculated by reference to basic pay rather than normal pay. Further, the series was not broken by a lawful payment of holiday pay if the lawful payment came about, as it did from time to time, because the worker concerned was not paid overtime in the reference period and so was not in fact underpaid.

The Court endorsed the Court of Appeal’s rulings on several other matters. It refuted the notion that different sources of leave (whether the minimum four weeks leave required by EU law, the additional 1.6 weeks’ domestic leave, or any extra contractual leave) must be taken in a specific order – they must form part of a single, composite pot. Additionally, it agreed with the method for computing holiday pay using working days in the reference period and upheld the view that the appropriate reference period was a question of fact.

Key Action Points for Human Resources and In-House Counsel

The case has huge financial implications for the PSNI, with media reports suggesting that it is likely to cost in excess of £30 million. For employers who are facing backdated holiday pay claims, the judgement puts to bed arguments reliant on the EAT’s Bear Scotland decision that a gap of more than three months between deductions in a series effectively brought the series to an end. Since the EAT’s judgment in 2015, this argument has been used to limit backdated holiday pay claims where workers allege that their employers have underpaid holiday over long periods of time. However, in the UK many employers will still be protected against large back-pay claims if they can rely on the Deduction from Wages (Limitation) Regulations 2014 which further restricts backdated claims by introducing a two year long stop on the period of recovery in cases based on a series of deductions for claims.

Chief Constable of the Police Service of Northern Ireland & PSNI another (Appellants/Cross-Respondents) v Agnew & others (Respondents/Cross-Appellants) (Northern Ireland) [2023] UKSC 33