Do holidays pay?
On 4 October 2023, the Supreme Court released its long-awaited judgment in the case of PSNI & Others -v- Agnew & Others, on the issue of holiday pay. We explain the outcome of the case and what it means for employers.
This case first came before the Industrial Tribunal in Northern Ireland in September 2018 and involved claims for years of underpaid holidays from around 3700 police officers and civilian employees in Northern Ireland.
The PSNI paid holidays to these workers at their basic rate of pay, not including allowances or overtime. The PSNI admitted these payments should have been included in calculating holiday pay, but tried to limit its exposure by arguing that the Claimants should not be allowed to join claims together as a ‘series of deductions’ if the underpayments were more than 3 months apart. The value of the claims if the Claimants were allowed to join their historic payments together as a series was an eye-watering £30 million, so when the Industrial Tribunal found in the Claimants’ favour, the PSNI appealed.
Because there is no Employment Appeal Tribunal in Northern Ireland, the Court of Appeal in Northern Ireland (NICA) heard the appeal. The PSNI tried to persuade NICA that it should follow the decision of the Employment Appeal Tribunal in Bear Scotland v Fulton. This 2014 case established the rule in Scotland, England and Wales that claims could not be linked as a series if there was a 3 month break between them (including if a lawful holiday payment had been made). It also held that holidays could be divided up into three separate holiday ‘pots’:
- the first 4 weeks of holiday to which an employee is entitled under the European Working Time Directive (WTD);
- the additional 1.6 weeks’ statutory leave to which they are entitled under the Working Time Regulations (WTR); and
- any further holiday to which an employee is entitled under their employment contract.
The EAT also held that employees only had to be paid their ‘normal remuneration’ (i.e. not just basic pay) for their WTD leave, which was deemed to be taken first. The remaining leave could be paid at basic pay.
Following the decision in Bear Scotland, employers in England, Scotland and Wales were further assisted by the introduction of legislation which established a ‘2-year backstop’, which stopped workers in those jurisdictions bringing claims for underpaid holiday where the underpayments took place more than 2 years before the date of their tribunal claim. Since employment law is a devolved matter in Northern Ireland however, and since no similar ‘backstop’ legislation was introduced there, if a worker in Northern Ireland could establish a series of underpayments, they could potentially claim for underpaid holiday dating as far back as 1998 (when the Working Time Regulations implemented the WTD in the UK) or perhaps even further, to 1996 (when the WTD ought to have been implemented).
NICA was not legally bound to follow the ruling in Bear Scotland, and it did not. It agreed with the Industrial Tribunal that the Claimants could potentially join claims together as a series, if the underpayments were factually linked. It also agreed that the idea that employees had three separate holiday ‘pots’ was ‘inherently illogical’ and said all holiday formed part of one composite pot. This decision meant the law in Northern Ireland then differed from the law elsewhere in the UK.
The Supreme Court’s decision
Following NICA’s decision, the PSNI appealed again, this time to the highest court in the UK - the Supreme Court. Decisions of the Supreme Court are binding in all UK jurisdictions.
The UK Supreme Court again found in favour of the Claimants. This means that the law across both Northern Ireland and Great Britain is now that:
- a series of unlawful deductions will not automatically be broken by a period of 3 months in which either the worker was correctly paid, or no leave was taken. Underpayments can form part of a series simply if they are linked by a ‘common mistake’
- all annual leave is one ‘composite pot’
What does this mean for employers?
The reference to all leave being treated as a ‘composite pot’ implies that all annual leave should be treated in the same way, because workers do not distinguish between their different types of leave. The Supreme Court did not go as far as to spell out that holiday pay for all types of leave should be calculated in the same way and this arguably leaves room for further litigation on this issue, but following Agnew it would be a very brave employer who continued to pay workers their basic rate of pay, at least for WTD and WTR leave (i.e. the first 5.6 weeks of their holiday entitlement). The position on any contractual holiday entitlement over and above WTD and WTR leave is less clear, but given the approach of the Supreme Court and the administrative burden which applying a different calculation for a small portion of leave is likely to place on employers, it is likely that employers will adopt the same approach to calculating holiday pay for all leave going forwards.
Whilst in Great Britain, employers have the benefit of the 2 year back-stop, which limits their exposure for historical holiday pay claims, the same is not the case for employers in Northern Ireland. It may well be that those employers see an increase in claims for historical holiday pay where they have paid holiday at the rate of basic pay only.
Although the Agnew decision will be greeted with dismay by many employers, the UK Government has been consulting about changing several aspects of holiday pay and it isn’t impossible that legislative changes will be introduced which could clarify or even change the situation now that the UK has left the EU.
If you are interested in this topic, join us for our online Holiday Pay Masterclass on 8 November 2023, where we will look at the practical implications of this Judgment for employers and the law in relation to holiday pay, including bonuses, overtime and issues such as part time and part year workers. Further details can be found at #Understanding… HOLIDAY PAY: Masterclass - 8 November 2023 Your invitation: Holiday pay (vuture.net).
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