The Supreme Court has held in the case of Chief Constable of Police Service of Northern Ireland v Agnew that employees can now claim for historic underpayments of holiday pay even if there are gaps of more than three months between deductions.
In the Agnew case, police officers and other employees who worked for the police services were only paid their basic pay during periods of annual leave; no account was taken of the fact that they would often work some compulsory overtime, and would therefore often receive more than their basic pay in any given week.
The employer agreed that overtime should have been considered when calculating their holiday pay. However, the legislation in Northern Ireland (which is very similar to the Employment Rights Act 1996) stated that there was a time limit; the employees could only claim for the difference between basic pay and typical pay for a period of three months before the claim was brought. This was the case unless: the deduction in pay had formed part of a series of deductions which could be linked together, and the claim was made within three months of the most recent deduction. The series could be broken by periods when there was no overtime, and therefore no underpayment, and this would limit the amount the employee could claim.
However, the court decided in the Agnew case that, in claims for historic underpayments of holiday pay, breaks of three or more months in a series of deductions may not break the chain of deductions if the deductions were linked by the same underlying cause. In the Agnew case, the underlying cause was that holiday pay was calculated with reference to basic pay rather than normal pay (which would include overtime payments).
The Supreme Court also stated that this applies to both the four weeks’ annual leave which comes from EU law and the additional eight days which reflect the UK bank holidays.
Unfortunately for employers, this means that claims for underpaid holiday pay may now be significantly larger than before. It is perhaps some consolation that currently, claims for unlawful deductions from wages under the Employment Rights Act 1996 can only look back at deductions over a maximum period of two years. However, this may be challenged in future.