The long-awaited Judgment relating to holiday pay has been handed down by the Supreme Court in the Agnew case. Holiday pay has featured heavily in employment claims over the years and in the UK, it has evolved to a point of being calculated with reference to various type of pay over and above basic pay, including commissions, bonuses and overtime payments.
Most recently the Employment Appeal Tribunal had decided in Bear Scotland Ltd v Fulton that, in relation to claims for backdated holiday pay, where there was a gap of more than 3 months between “deductions”, i.e. non-payments, this broke the chain for the purposes of claiming there was a “series of deductions”, thereby significantly limiting the extent of backpay claims.
The Agnew case was historically heard in Northern Ireland and was therefore not binding in the UK. However, the recent question to come before the Supreme Court was whether a gap of more than 3 months in a series of deductions did indeed break the chain. If it did, then backpay claims would continue to be limited but if the Court decided otherwise, then it would pave the way for claimants to bring significant holiday pay claims dating back over lengthy periods of time, even where there had been a gap of more than 3 months between deductions.
In its much anticipated landmark Judgment, the Supreme Court has held that the employees in the Agnew case can bring historic holiday pay claims for a series of deductions, finding that a series is not broken by a gap of more than 3 months and that what amounts to a series is instead fact dependent. This Supreme Court decision overrules the Bear Scotland case and is binding on UK courts and tribunals.
While this decision is anticipated to cost the Northern Ireland employer in the region of £30 – £40million because there is no limit on the extent of back dated holiday pay claims, there is a silver lining for UK employers. As a result of the Deduction from Wages (Limitation) Regulations 2014, there is a two year limit on unlawful deductions for any such claims brought after 1st July 2015. This means that any unlawful deduction claims now coming before UK tribunals as a result of the Agnew decision are limited and cannot go back more than two years from the last deduction. Admittedly, UK employers can still face significant financial rulings against them but this is far less than in Northern Ireland where there is no equivalent of the 2014 Regulations.
So, what should employers in the UK be doing now? While claims for non-payment of holiday to date can’t be prevented unless employers are going to rectify any historic errors, it’s important to make an early assessment of how holiday pay is being calculated for all employees and workers in the business going forward to ensure this is compliant with UK law. It’s also crucial that going forward, holiday pay is calculated and paid correctly to minimise the risk of future claims.
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