Earlier in the week we looked at the impact of the Supreme Court’s ruling in the case of The Chief Constable of The Police Service of Northern Ireland v Agnew. It impacts the PSNI directly, of course, and they now face paying out around £40 million in back pay to their staff, but the ruling goes far wider than that and means 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 and last week holiday pay expert Anthony Convery talked to this programme about that backstop and the extent of the liability facing GB employers going forward. In this programme we’ll look at the impact on employers in Northern Ireland which is more significant because that backstop doesn’t operate in Northern Ireland given the regulations are GB-specific.
A reminder. 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 employers in Northern Ireland. Earlier Craig Patterson joined me by phone from Belfast to discuss the case. I put it to Craig that this is a very significant ruling from the Supreme Court:
Craig Patterson: “Yes, Joe, this is a massive case in Northern Ireland. The individual case itself has a high value. I think it has been quoted as £30m or £40m, potentially, of liability for the PSNI but this isn't a decision that only affects the PSNI, it affects all employers, and the calculation of holiday pay and, in fact, we already know that within the industrial tribunal there are thousands of live holiday pay claims that have been waiting for this decision before they move forward. So, potentially individual cases, individual employee cases, quite low value but cumulatively have significant value to employers in Northern Ireland, more so than perhaps their GB counterparts where, in Great Britain, there has been a two-year backstop on these types of claims since 2015 which has helped limit the potential impact whereas in Northern Ireland, no legislative backstop was introduced and one of the big impacts of this decision is the possibility that claims can stretch right back to an individual's commencement of employment, or the Working Time Regulations coming in in 1998, whichever is later. So, that's where it becomes much more of a bigger issue for Northern Irish employers than perhaps than, as I say, their GB counterparts.”
Joe Glavina: “There are many employers who have been keeping abreast of the developments in this litigation and have already changed the way they calculate holiday pay so they are relatively unaffected by this ruling as I understand it. But, as the press reports have been highlighting, there are many who have been miscalculating holiday pay for years and some of them have been negotiating with trade unions about settling potential claims. So, we see those different two camps. Have you noticed that difference?”
Craig Patterson: “You do see, as you say, the two different approaches and I would sort of estimate that you're probably close to 50/50, perhaps more so. In recent years we've seen some moves by unions and employers in particular to try to reach an agreement on these types of cases given how long they've gone on, but the challenge for unions and employers is the decision that we were waiting for, and this train of case law, has a significant impact on the potential value of those claims. So, there was a reluctance on the part of unions holding hundreds of claims, thousands of claims, to be seen to be settling claims for potentially much lower value and what they potentially may now have and equally there is a lot of uncertainty still around what the best approach is moving forward. So, absolutely, those discussions have been ongoing and I think compared to Great Britain we certainly have a higher number of employers in the ‘let's wait and see’ camp because there has been more uncertainty in the Northern Ireland picture than there has been in Great Britain.”
Joe Glavina: “Given the Supreme Court’s ruling which is very worker friendly, are you expecting an influx of claims on the back of it, and queries from clients, especially given all the publicity around it?”
Craig Patterson: “Yes, absolutely, and you do tend to see these influx of claims and influx of queries after big cases like this. We saw it after the Court of Appeal decision in Agnew and there was an uplift in queries coming through from our clients where employees had seen it in the news. We’ve seen an uplift in tribunal claims being lodged by claimants who believed that they had claims on the back of seeing it in the news. So absolutely, it's an area where you can expect employees to be pushing employers to understand how their holiday pay is calculated and whether it has been done correctly.”
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 types. How should employers approach that?”
Craig Patterson: “The first option for employers, if they accept the position that it is a composite of the whole so you each day you take is part Working Time Directive, part Working Time Regulations, part contractual, is to treat it all as being Working Time Directive leave. So, ensure that effectively the employee is always better off through that approach, and they will always get paid on the best calculation. That obviously takes out the complexity of trying to calculate potentially two or three different ways of working out holiday pay and ensures consistency. There's obviously, potentially, an increased cost in doing that. What the Supreme Court didn't say was that it was unlawful, or an employer couldn't stipulate that leave is taken in a certain order. What it did say was that absent any explicit reference to the contrary, the default position is the composite approach. So, it left the door open to the potential that employers could separate it out and state that Working Time Directive leave is taken first, then Working Time Regulation leave and then contractual. So that is another option employers can consider.”
Joe Glavina: “A claim still has to be brought within three months of the last deduction so, going forward, employers can protect themselves to some extent by paying correctly from now on. Is that right?”
Craig Patterson: “Provided that the calculation is based on the correct premise. So, what they did say was that a lawful payment by happenstance. So, if you start off from a wrong starting point, that holiday pay should only include basic pay and, by happenstance, you made a lawful payments simply because the employee hadn't worked overtime or had any other additional payments to incorporate into that holiday pay, so you happen to make that lawful payment, that will not break the chain and that cannot be held out as breaking the chain. But it left the door open to saying, well, if the employer changes their approach now and begins to correctly pay holiday, that will break the chain, as you say, and it will start the clock running. So, it comes back to is the employer looking at how to calculate holiday pay correctly in the first place as opposed to just happening to correctly pay due to individual circumstances.”
Craig was talking about the implications of this ruling on employers in Northern Ireland. Last week we looked at the implications of this ruling on employers in Great Britain with Anthony Convery providing the expert analysis. That programme is ‘GB employers face ‘limited but significant’ exposure to historic holiday pay claims after Agnew’ and we’ve put a link to it in the transcript of this programme for you.
LINKS
- Link to HRNews programme: ‘GB employers face ‘limited but significant’ exposure to historic holiday pay claims after Agnew’
- Judgment: Chief Constable of The Police Service of Northern Ireland v Agnew.
