Can employees claim for historic underpayments of holiday pay even if there are gaps of more than three months between deductions?

Yes, held the Supreme Court in its long-awaited Judgment in Chief Constable of Police Service of Northern Ireland v Agnew.

The Claimants were police officers and civilian staff working for the police in Northern Ireland. They brought claims for underpayment of holiday pay after having historically received basic pay only during periods of annual leave. The parties agreed that there had been an underpayment and that holiday pay should have been calculated to include periods of compulsory overtime. The issue before the Supreme Court was how far back the Claimants were entitled to go with their claim. The provisions of the relevant Northern Irish legislation (which mirror the Employment Rights Act 1996) made it clear that a claim could only be made in respect of a payment made in the three months before the claim was brought, unless the deduction was part of a series, in which case the deductions could be linked together provided that the claim was brought within three months of the last of the series of deductions.

In Bear Scotland v Fulton the Employment Appeal Tribunal (EAT) had previously concluded that deductions could only be linked in a series if there was a gap of three months or less between each deduction.

The Supreme Court in Agnew has now held that where a series of deductions are all based on an employer failing to properly meets its obligations to pay holiday correctly and, but for the mandatory cut off after 3 months which was set out in Bear Scotland, they would otherwise constitute a series, employees should be able to link each deduction. To hold otherwise would produce unfair consequences.

The Supreme Court concluded that the period during which a claim can be brought is three months from the date the last payment was made, but that this three month limit does not restrict or qualify the meaning of a “series” of deductions.

Whether a claim in respect of two or more deductions constitutes a claim in respect of a series of deductions is essentially a question of fact, and in answering that question all relevant circumstances must be taken into account, including, in relation to the deductions in issue: their similarities and differences; their frequency, size and impact; how they came to be made and applied; what links them together, and all other relevant circumstances. Whether or not the deductions were more or less than three months apart is not, from this point onwards, relevant.

It should be remembered that the impact of this judgment is mitigated for employers by the fact that claims for unlawful deductions from wages under the Employment Rights Act 1996 can now only look back at deductions over a maximum period of two years (although we think that two year backstop is highly suspect and potentially liable to challenge in future).