The Supreme Court's latest holiday pay decision finally gets rid of the argument that a 'series' of underpayments of holiday pay is definitely broken if two such payments are separated by a gap of more than three months. This makes it easier for workers to claim for historic holiday pay underpayments stretching back up to two years.
The claimants in Chief Constable of the Police Service of Northern Ireland and another v Agnew and others had been paid basic pay whenever they took holiday. It later became clear from case law developments that, for the four weeks of statutory holiday derived from the Working Time Directive, their holiday pay should have included an additional element of overtime pay. The claimants brought unlawful deductions claims for their historic underpaid holiday pay.
The right to claim for unlawful deductions allows workers to claim not just for underpaid holiday pay in the last three months, but for an unbroken 'series' of historic underpayments (subject, in England, Scotland and Wales, to a two-year backstop that limits the claim to the two-year period before the start of proceedings).
The employers in Agnew argued, relying on a 2014 EAT decision, that the series of holiday pay underpayments came to an end whenever there was a gap of more than three months between any periods taken as paid holiday. If this was correct, it could significantly limit how far back a claim for unlawful deductions of holiday pay could go, therefore significantly reducing the employers' liability.
However, the Supreme Court disagreed with the employers. What constitutes a 'series' depends on the facts. In Agnew, each unlawful underpayment of holiday pay was linked by the common fault that holiday pay had been calculated by reference to basic pay only. A series doesn't need to be a continuous string of deductions, and even if there is a break of more than three months between deductions, it doesn't necessarily mean that the series has ended.
What this means for employers
An employer's liability for systemically underpaying holiday pay to a workforce can be costly. In the Agnew case itself, the estimated liability is £30 million (this figure is amplified by the fact that this is a Northern Irish case where the two-year backstop doesn't apply, so the Agnew series of underpayments potentially go back as far as 1998).
Employers may therefore wish to review their holiday pay arrangements to ensure that they are calculating holiday pay correctly, especially where worker pay includes elements such as commission, overtime and allowances.
If you would like more information on managing holiday pay issues, please get in touch with your usual Mishcon contact or with a member of the Employment team.