27 June 2019

The Northern Ireland Court of Appeal (NICA) has issued a wide-ranging judgment that challenges the three month break rule which has been used to limit holiday pay (and other unlawful deduction claims) since the Bear Scotland v Fulton decision in late 2014. It also brings into question the assumption that the four weeks’ Euro leave under the Working Time Directive should be used before any other leave in any holiday year.

The case, which relates to backdated claims for the underpayment of holiday pay in the Police Service of Northern Ireland going back 20 years, is a significant development and will have major implications for many employers in Northern Ireland dealing with historic holiday pay claims and possibly for employers in the rest of the UK in the future.

The key points from the judgment are:

  • That a gap of three or more months between deductions will not break the series of deductions. A claimant can therefore claim for unlawful deductions that occurred before the three month gap and form part of the series of deductions.
  • It is a question of fact whether a deduction forms part of a series and if all deductions arise out of the fact that holiday pay was paid as basic pay and did not include overtime/allowances, they are likely to form part of the same series.
  • A series of deductions will not be interrupted by a lawful payment.
  • There is no requirement for the first four weeks’ annual leave under the Working Time Directive to be taken before any other entitlement to leave (statutory or contractual). This leave is no different to any other leave and therefore there is no requirement for leave to be taken in a particular order.
  • The correct way to calculate holiday pay is to base it on working days not calendar days. So 20 days’ holiday (or four weeks’) should be calculated using the fraction 20/260 (or 4/52) or 7.69% and not 20/365.
  • The reference period used to calculate holiday pay is fact sensitive and a pragmatic, administration-friendly method for calculating and paying “normal pay” is to base it on averages taken over a rolling 12 month period immediately preceding the period of leave.

Although the case was decided under Northern Irish law, in particular the Employment Rights (Northern Ireland) Order 1996 (ERO), the wording relating to a series of deductions is the same in the Employment Rights Act 1996 and so it may have implications for claims in the rest of the UK in the future. In the view of the NICA, the Employment Appeal Tribunal in Bear Scotland was wrong to decide that a gap of three or more months between deductions will break the series of deductions, as there is nothing in the legislation that expressly or impliedly imposes a limit on the gaps between particular deductions making up a series and this would lead to arbitrary and unfair results. Equally its decision that there is no reason for the first four weeks’ annual leave under the Working Time Directive to be taken before any other entitlement to leave significantly reduces the likelihood of there being a gap of three months or more between underpayments of holiday pay and a breach of a series.

The decision is not binding in England, Wales or Scotland, but it is likely that it will be brought up by unions and employees who are involved in claims and/or are negotiating holiday pay deals. In any event, in England, Wales and Scotland, for any claims brought on or after 1 July 2015 there is a two year cap on unlawful deduction claims. This cap means that, even if NICA’s judgment was to be applied in an English appeal court, an unlawful deduction claim issued now would still have a cap on it of two years’ worth of losses.

Given the financial implications of settling the claims is now around £40 million, it is likely that the decision will be appealed to the Supreme Court. A decision of the Supreme Court would be a major development and could have implications for employers in Great Britain, so we are keeping track of the case with interest. In the meantime, if you would like to discuss the implications of this decision and obtain specific advice, please contact Luke Bowery.

(Chief Constable of the Police Service of Northern Ireland V Agnew and Others)

Key contact

Luke Bowery

Luke Bowery Partner

  • Employment
  • Restructuring and Redundancy
  • Equality, Diversity and Discrimination

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