As you may have seen in the news, the Supreme Court has handed down its judgment in the long-awaited case of Chief Constable of The Police Service of Northern Ireland v Agnew. The Police Service will now have to honour around £40 million in back pay and many other employers now face the prospect of significant compensation claims for holiday pay miscalculations.
Although the case affects both GB and NI employers, its impact in GB is mitigated by legislation which imposes a two-year limit on unlawful deductions claims brought after 1 July 2015. Those regulations were not introduced in Northern Ireland. We’ll speak to an employment lawyer about the GB position.
The case was brought by trade union Unison on behalf of a PSNI employee, Alexander Agnew, and 3,700 colleagues. They regularly worked overtime but were paid only basic pay as holiday pay. They brought claims seeking holiday back pay dating back to 1998 based on ‘normal’ pay rather than basic pay.
An issue throughout the litigation has been whether a gap of three months between underpayments of holiday pay broke the chain of a series of deductions, an approach established by the Employment Appeal Tribunal’s ruling in Bear Scotland v Fulton in 2014. The Supreme Court has rejected that approach ruling that a three-month gap in a ‘series of deductions’ claim under unlawful deductions from wages provisions will not result in holiday pay claims being time barred.
That is the key point to take from this case and it’s highlighted by Stuart Neilson in his Out-Law article: ‘UK Supreme Court backs worker-friendly underpayment ruling’. He says: “As the vast majority of workers would have gaps of three months or more between holidays, if the Bear Scotland case was followed, this would in most cases limit the period for which holiday pay arrears could be claimed to no more than 12 months. The Supreme Court has confirmed that the Bear Scotland decision was wrong in this respect as it would defeat the purpose of the series of deductions rules which were intended to protect vulnerable workers.”
The Supreme Court also made comments about not distinguishing between the three different kinds of leave which can apply, namely the four weeks’ leave from the Working Time Directive, the 1.6 weeks’ statutory leave and whatever extra contractual holiday entitlement the employer might offer on top. The Court has said that the default position should be that all three types must form part of a single, composite pot. That approach is problematic because different rules apply to each type of leave so quite how employers approach that for calculation purposes will be a challenge.
Clearly this is a very important decision so let’s get a view on how it impacts on GB employers. Anthony Convery specialises in holiday pay matters and earlier he joined me by phone from Glasgow to discuss the case.
Anthony Convery: “I think the key thing about this case is it's a reminder to employers to ensure that they're paying at least four weeks of annual leave each year at normal remuneration and this case just highlights that the importance of checking your policies, checking your practices, from an employer's perspective and just making sure that that is the case. We're already advising a number of clients who have asked us just to do a general refresh of their holiday pay practices in light of this case because it's always good to keep on top of these things.”
Joe Glavina: “For some clients you’re conducting a holiday pay audit. What does that involve?”
Anthony Convery: “A holiday pay audit would involve us, first of all, getting an understanding of how the employer currently treats holiday pay. One of the most important things is to understand their systems and what is achievable from a systems point of view because holiday pay is a very complicated subject and employers’ payroll systems are not always set up to be able to deal with those complexities and employers often have to find practical workarounds. So, what we look at is, first of all, how do the employer’s holiday pay practices and their systems fair against, how do they compare, when you're assessing it against strict legal compliance? If for practical reasons it's not possible to design a system which maybe meets the strict legal tests, we then look at helping employers understand ways that they can put in place systems which would mitigate any risk and achieve a pragmatic solution.”
Joe Glavina: “A claim must still be brought within three months of the last deduction so going forward it’s important to pay correctly to start the clock and limit liability. So, while employers can’t go back in time and correct what they’ve done previously, at least going forwards they should get the calculations right.”
Anthony Convery: “That's true, correctly paying holiday pay going forwards for a period will limit the risk of future claims because, as you say, a worker has to bring a claim within three months of a deduction so employers who aren't already paying holiday pay correctly will be best advised to start doing it now in order to limit the risk of claims arising in the future.”
Joe Glavina: “Can I just ask you about this rather complicated point on composite leave. So, the Court has said it is not practical to distinguish between different types of leave and so the default position is each day's leave is a composite of all three. That sounds neat but it must be very difficult for employers to do the calculations based on that model?”
Anthony Convery: “This is a hugely complex issue and it's very difficult to see how employers can deal with this in practice, this idea that every day of holiday in a year is a composite of the different types of leave that you can get, and the different types of leave bring with them different rates of pay because the four weeks’ annual leave per year should be paid at normal remuneration but, in many cases, the remainder of the annual leave for the year, the 1.6 weeks additional annual leave, is just paid at basic rate. So, it's a very difficult one for employers to deal with. Strictly speaking, the way to deal with it would be to have a system that allows each day to be paid at a composite rate but in practice that's going to be very difficult for employers. I think the best thing employers can do is being clear in their policies the order in which the leave is taken. So, if it's the case that the first 20 days, the first four weeks of leave per year are paid at the enhanced, the normal, remuneration rate then the policy should say that. It should say the first four weeks of annual leave in the year are the four weeks annual leave, the Regulation 13 leave, and the remainder of the leave is the additional annual leave. So, it's important to be clear about that in the policy.”
Anthony was talking about the implications of this ruling on GB employers. Next week we’ll look at the implications for employers in Northern Ireland where the case has an even bigger impact - with help from Belfast lawyer Craig Patterson. Meanwhile, the team’s Out-Law article on this provides further background and detail on the ruling – that’s ‘UK Supreme Court backs worker-friendly underpayment ruling’ and we’ve put a link to it in the transcript of this programme.
LINKS
- Judgment: Chief Constable of The Police Service of Northern Ireland v Agnew.
- Link to ‘UK Supreme Court backs worker-friendly underpayment ruling’
