KNOWLEDGE

Northern Irish Court of Appeal casts doubt on limitation of holiday pay claims

Morton Fraser_Innes Clark
Author
Innes Clark
Partner
PUBLISHED:
04 July 2019
Audience:
category:
Article

The judgement of the Northern Irish Court of Appeal ("NICA") suggests that a series of unlawful deductions should not be broken by a three month gap.

Holiday pay claims (commonly relating to a failure to include commission or certain overtime payments when calculating holiday pay) can be made under the Working Time Regulations 1998 ("WTR") or as an unlawful deduction from wages claim under the Employment Rights Act 1996. An unlawful deductions claim can be based on a "series of deductions".  At one point it was thought that workers, engaged by the same business, could claim outstanding holiday pay over many years - each failure to pay simply amounting to another deduction.  The claims (which related to the four week period provided by the Working Time Directive ("WTD")) potentially extended back to the start of the worker's engagement with the business or 1 October 1998 when the WTR took effect, whichever was the most recent.   

However, no doubt much to the relief of many employers, the EAT decided in 2014 in Bear Scotland Ltd v Fulton and another that if there was a break of 3 months or more without a deduction being made then the series would be broken.  That potentially significantly limited the value of retrospective holiday pay claims - unless workers took part of their WTD holiday entitlement at least every 3 months then the chain would be broken.  This judgement was subsequently followed by the introduction of The Deduction from Wages (Limitation) Regulations 2014 which took effect from 1 July 2015.  The Regulations imposed a 2 year limitation period on most unlawful deduction from wages claims, including claims for holiday pay.  They also provide that Regulation 16 of WTR does not provide for a contractual right to paid leave preventing holiday pay claims from being raised in the civil courts to get around this limitation period.  

However, in Chief Constable or the Police Service of Northern Ireland & Another v Agnew the NICA has cast doubt on this.  The case related to failures by the police service to pay appropriate amounts of holiday pay and subsequent claims brought under the unlawful deduction provisions of the Employment Rights (Northern Ireland) Order 1996.  There were six grounds of appeal considered by NICA, but it is their judgement on the meaning of a series of deductions and whether the series ended by a gap of more than 3 months that is of interest.  NICA specifically considered whether they approved the judgement in Bear Scotland Limited in this regard. 

NICA considered that in order to establish a series of deductions it was necessary to identify the series.  There did need to be "a sufficient similarity of subject matter such that each event is factually linked with the next".  When the series is identified as "a series in relation to holiday pay" then the link in the series is the failure to pay the correct amount of holiday pay.  The fact that there would have been appropriate payments in between the various holiday payments which were not subject to unlawful deductions will not interrupt the series of payments in relation to holiday pay.  A series is not ended by a gap of more than 3 months between unlawful deductions.  On the facts of this particular case NICA also found that the fact that on some occasions the correct amount of holiday pay may have been paid did not break the series of unlawful deductions either. 

As this was Northern Irish legislation being considered by a Northern Irish court the outcome is not binding on tribunals in Great Britain - indeed the EAT decision in Bear Scotland remains the binding authority here.  However, the terms of the unlawful deduction of wages provisions in the Irish legislation is identical to that set out in the Employment Rights Act 1996 and this judgement provides strong persuasive authority for arguing the EAT was wrong in Bear Scotland.  Taken together with the Opinion of the Advocate General and the subsequent Judgement of the ECJ in the case of King v The Sash Window Workshop & Another which indicate that The Deduction from Wages (Limitation) Regulations 2014 may be incompatible with EU law, this case suggests employers may need to re-consider what liabilities they might have for unpaid holiday pay.

Disclaimer

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.