On 4 October, the Supreme Court handed down its long-awaited judgment in the case of Police Service of Northern Ireland v Agnew & Ors [2023]. Although a case initially brought in Northern Ireland, the Supreme Court’s decision is binding on the whole of the United Kingdom. It has significant implications for the calculation of holiday pay and the way holiday pay miscalculations are compensated by the courts and tribunals.
Relevant legal principles
Holiday and holiday pay is a notoriously complex subject. The rules of interpretation which give rise to the relevant legal principles we see today (many of which are engaged by this case) are derived from various domestic and European case law. In order to understand the implications of this Judgment, therefore, it is necessary to understand these principles. A brief summary is set out below:
- 20 days by virtue of the European Working Time Directive (‘WTD Leave’); and
- 8 additional days’ leave by virtue of the UK Working Time Regulations 1998 (‘Additional Leave’).
- WTD Leave holiday pay must be based on a worker’s ‘normal remuneration’ – i.e. basic pay plus all overtime, commission, standby/call out payments and some bonuses; however,
- Additional Leave is calculated as ‘a week’s pay for a week’s leave’ – i.e. basic pay only.
Factual background
The Claimants in this case were police officers and civilian staff working for the Police Service of Northern Ireland (‘Police Service’). Historically, their holiday pay had been calculated based on their basic pay rather than based on ‘normal remuneration’, and they lodged claims in the Northern Ireland Industrial Tribunal for arrears of holiday pay dating back to 1998.
Whilst the Police Service accepted that underpayments had been made, the issue in this case was how far back the Claimants could claim compensation.
The Police Service argued that a claim for underpayments should be limited to underpayments in the three months before the claim is brought.
The Claimants relied on the Series Extension provision, arguing that they should be able to claim underpayments that go back more than three months.
The issue to be decided by the Court of Appeal and, ultimately, the Supreme Court were:
Supreme Court decision
The Supreme Court dismissed the Police Service’s appeal and found in the Claimants’ favour.
They held that:
Implications
The ruling overturns the current position which enabled employers to limit their liability by: encouraging workers to take long gaps between holidays; “topping up” holiday pay on a regular basis; and/or by stipulating which type of statutory holiday is deemed to be taken first.
It clarifies that, even where lawful holiday payments are intermittently made to workers, if the employer continues to calculate holiday in the same way, making the same type of underpayment on a regular basis (regardless of whether the payment is more or less than three months since the last lawful or unlawful payment), the deductions will still be potentially linked as a “series”. Whilst this ruling is significant, it is less significant for England, Wales and Scotland than it is for Northern Ireland since, in these countries, unlawful deductions from wages claims are subject to a two year ‘backstop’. Even so, depending on the size of the employer, the decision could still result in significant compensation payments being made to a workforce for the limited, two year, period.
It also potentially paves the way for other types of deductions, which may be irregular but largely outside of the worker’s control, to be linked as a ‘series’ (e.g sick pay, commission payments).
Advice for employers
In situations such as these, forewarned is forearmed. Our advice is for employers to:
- audit the way holiday (and other) payments are calculated to ensure they comply with the relevant legal principles;
- review historic holiday records to identify any potential claims;
- calculate the worst-case financial liability;
- work out a viable and affordable repayment plan; and
- put appropriate mechanisms in place to ensure lawful calculation of holiday pay in the future.