In a significant case for employers, the Supreme Court has held this morning that underpayments of holiday pay are not broken by a correct payment nor a gap of more than three months between underpayments. They all form a "series" of unlawful deductions from holiday pay. This will make it easier for workers to claim historic underpayments of holiday pay.
Background and Facts
In England, Scotland and Wales, a claim for holiday pay deductions must be brought within three months of the deduction, or within three months of the last deduction where there is a series of underpayments. In the landmark case of Bear Scotland v Fulton in 2014 the EAT confirmed that a series of unlawful deductions is broken by a gap of three months or more.
Following the Bear Scotland judgment, the government introduced new Regulations which established a “backstop” period which prevented employees from making unlawful deductions from wages claims, including claims for holiday pay, which went back further than 2 years. However, this was not introduced in Northern Ireland.
Today's case concerns the underpayment of holiday pay and in particular the entitlement of police officers and civilian staff in Northern Ireland (the employees) to recover payments for working overtime which their employer should have paid to them as holiday pay when they took paid annual leave. The Chief Constable of the Police Service of Northern Ireland (PSNI) and the Northern Ireland Policing Board, accepted that the employees were underpaid (as they were paid their "basic pay" as holiday pay rather than "normal pay") but disputed the period for which the employees were entitled to recover. The PSNI argued that the police officers were only entitled to recover sums underpaid in the last three months before the claims were brought.
Supreme Court judgment
The Supreme Court dismissed the appeal and in doing so has also found that the Bear Scotland case was wrongly decided. The Supreme Court has concluded that a series of deductions is not necessarily brought to an end by a correct payment or gap of three months or more between unlawful deductions.
What does this mean for employers?
Whilst this is a Northern Ireland case, the Supreme Court's decision will be binding throughout the UK.
This case will make it easier for workers to claim historic underpayments of holiday pay, although there is generally a two-year limitation on claims in Great Britain. Even with the two year limitation this decision significantly increases the exposure for GB employers. However, for employers in Northern Ireland this is likely to cause significant financial consequences as there is no two-year back stop. Employees claims in NI could potentially stretch back to the beginning of their employment or 1998 – when the Working Time Regulations came into force. The PSNI estimated, prior to the hearing in this case, that the costs of meeting its historical liabilities would increase by a factor of 100, from £300,000 to £30 million, if it lost on the series of deductions point.