The Supreme Court of the United Kingdom has recently decided the case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others, a Northern Irish case that has been working its way through the courts since 2015. The decision has been long awaited given the potential implication for liability for claims for underpayment of holiday pay. We look at the implications for employers.

Facts

Police officers and civilian employees of the police service of Northern Ireland (PSNI) brought claims for underpaid holiday pay. It was accepted by all parties that the PSNI’s practice on holiday pay resulted in underpayments, as it calculated holiday pay based on basic pay only, ignoring overtime payments and certain other allowances, in breach of case law requiring workers to be paid their “normal remuneration” for the four weeks’ annual leave derived from EU law. The crux of the claims at this stage was not whether the holiday pay was calculated incorrectly, but the question of how far back in time claims could go.

The claims were brought under the Employment Rights (Northern Ireland) Order 1996 (ERO) and the Working Time Regulations (Northern Ireland) 2016 (NI WTRs) for underpayment of holiday pay.

The NI WTRs allow workers to bring a claim for underpayment of holiday pay, but the time limitation is such that a claim must be brought within three months of the underpayment – so most of the claims here would be time barred. Conversely, the ERO permits workers to bring a claim for a “series” of underpayments of holiday pay provided the claim is brought within three months of the last in the series – which would be much more favorable to the workers. There was a disagreement about who was covered by the ERO – the parties agreed that the civilian staff could bring a claim under the ERO but the PSNI argued the police officers couldn’t on the wording of the regulations (although police officers would qualify to bring a claim under the NI WTRs).

The key issues to be decided were:

1. Whether the police officers could benefit from the rights to claim for a series of underpayments of holiday pay by reading the provisions from the ERO into the NI WTRs by applying the EU principle of “equivalence” (i.e., that national procedural rules applicable to EU rights must not be less favorable than those in respect of domestic rights).
2. The meaning and scope of a “series” of underpayments – for example whether a “series” would be broken by either (i) a three-month gap or more between payments; or (ii) if there had been a legally compliant payment between deductions (following the decision of the EAT in Bear Scotland).

In a stark illustration of the potential liability – if the claimants were right, the civilian employees and police officers’ claims were worth around £30 million but if the PSNI was right, the claims were worth only around £300,000!

Decision

The Supreme Court sided with the claimants and found that:

1) The EU principle of equivalence was infringed meaning that the ability to claim for a series of underpayments of holiday pay in the ERO should be read across into the NI WTRs, effectively extending the right to claim under the NI WTRs.

So, both the police officers and the civilian staff in Northern Ireland could bring claims for a series of underpayments of holiday pay.

2) Where a common fault is behind each in a series of underpayments, that allows each in the series to be linked together in a claim (subject to certain statutory limits).

The court held that a three-month gap or a legally compliant payment did not automatically break the chain in a “series” of underpayments. The court explained that what constitutes a series will always be a question of fact, considering factors like the frequency and similarity of payments and why the deductions were made. As there are no hard and fast rules, employers must consider the full factual background to fully understand their risk. In Agnew, the "common fault" was that holiday pay had been wrongly calculated as it had not considered overtime payments or other applicable allowances.

3) The different “pots of leave” entitlements under the NI WTR are one composite pot.

The Supreme Court also had to consider the interaction between the 4 weeks of EU-derived leave and the 1.6 weeks of additional leave in the UK (for which there are different rules e.g. for holiday pay and carry over). In its consideration it stated that the two sources of holiday in UK law should as a default position be treated as one “composite pot” in so far as it is not practicable to distinguish between the two different types of leave. 

What does this mean for employers?

This case has implications for Northern Ireland, but also England, Wales and Scotland, as there are equivalent provisions in the Employment Rights Act 1996 and the Working Time Regulations 1998 in Great Britain. 

Employers can no longer argue that breaks of at least three months or a correct payment will automatically break the series of deductions to limit how far claims for underpayment of holiday can be paid. This decision has potentially significant implications for employers who have been calculating holiday pay incorrectly as it increases potential liabilities for underpayments of holiday pay.

However, currently there is a crucial difference between claims in Northern Ireland and those in Great Britain that impacts how far back a series of underpayments can be claimed. In Great Britain, the Government legislated in 2014 to amend the law to provide a two-year backstop in respect of a series of underpayments. So, in Great Britain claims can only be made for underpayments looking back up to two years. There is no equivalent legislation in Northern Ireland, meaning that in Northern Ireland claims can in theory go back to 1998 when the right to paid holiday was introduced – and perhaps even to 1996 (subject to whether the underpayments constitute a “series” on the facts).  

The Supreme Court’s decision also raises complicated questions for employers about the practical impact of the decision that the two sources of holiday in UK should as a default position be treated as a “composite pot” in so far as it is not practicable to distinguish between the two different types of leave. This becomes even more complicated due to the Government’s decision not to merge these two types of leave (despite indications during the consultation process that it would), which we explore in our article here.