UK: Holiday Pay Two-year Backstop
Authors: Robert Hill, Corinna Harris, and Sophie Jackson
A tribunal has found that the two-year backstop on unlawful deductions claims is unlawful.
Where a worker brings a claim for unpaid holiday pay as an unlawful deduction from wages claim, their claim is limited to two years’ worth of losses dating back from when they brought their claim.
This is because of Regulations introduced by the government in 2014 after a series of holiday pay cases found that certain types of additional payments should be included in calculations of holiday pay. The purpose of the Regulations was to reduce the impact of holiday pay claims that could otherwise stretch back for many years and therefore be particularly costly for employers.
In a recent decision, an Employment Tribunal has ruled that drivers engaged by Addison Lee Limited in its private hire business are workers and entitled to receive holiday pay and the national minimum wage.
Significantly, the Tribunal went on to rule that the drivers’ claims to unpaid wages (in the form of holiday pay and the national minimum wage) should not be limited by the two-year backstop on unlawful deductions claims. That was because, in the Tribunal’s view, the Regulations that introduced the two-year backstop are unlawful. The Tribunal concluded that the government did not have the power or authority it needed to introduce the two-year backstop in the way it did.
Key Action Points for Human Resources and In-house Counsel
It seems highly likely that this point will be appealed, with the judge accepting that “my conclusion in that regard will be challenged and may be wrong.” However, if the decision is upheld by the higher courts, it could enable workers to bring holiday pay claims going back more than two years and prove to be costly for employers.
The two-year backstop does not apply to holiday pay claims where the worker has been denied any right to paid leave because they have been misclassified as self-employed (under the principle in the Pimlico Plumbers case). This is because these types of claims do not rely on there being a series of deductions. Instead, they are based on the principle that the untaken or unpaid holiday entitlement is caried over from year to year until termination, when a single payment in lieu is due.
