Demystifying Holiday Pay – Chief Constable of The Police Service of Northern Ireland v Agnew

Trainee Solicitor, Jasmine Harland looks into the recent case of The Chief Constable of The Police Service of Northern Ireland v Agnew.

In this recent case, the Supreme Court held that police officers and other employees of the Police Service at Northern Ireland whose holiday pay had not included overtime and certain allowances could recover a series of underpayments of holiday pay, even where there had been a gap of three months or more between the underpayments, and that making a correct payment does not automatically break the chain of a series of deductions.

This widely reported decision placed the issue of holiday pay back in the spotlight, the net effect of which is that employers who have failed to calculate holiday pay in accordance with earlier court decisions by including overtime and other allowances now potentially face higher liabilities which could stretch back over a considerable period.

Impact of the ruling

Whilst claims for holiday pay can be brought under the unlawful deductions’ legislation, as a series of deductions, many employers relied upon the common understanding that if there was a gap of 3 months or more between leave being taken, or alternatively if a correctly calculated payment was made, this could be relied on to break the chain of deductions, and limit liability accordingly.

This case establishes that there would be no such break, meaning that claims can be advanced in relation to linked underpayments, regardless of how far apart they are, if there is a common fault prevailing within each deduction.

Whilst this was a decision relating to employees based in Northern Ireland, it will impact on employers in both Northern Ireland and England and Wales. Fortunately for employers in England and Wales, the impact is mitigated by the fact that existing legislation imposes a limit of two-years on how far back holiday pay claims can go.

It is worth noting that a claim would still need to be presented within the statutory time limit of 3 months from the date of the last in the series of incorrect holiday payments, so that adjusting pay to reflect the correct legal entitlement and then maintaining this will still start the clock running on the time limit to present a claim. The concern with changing pay arrangements is that this may trigger a realisation by employees that they have historically been underpaid.

To investigate potential exposure to claims for backdated holiday pay, employers can carry out an audit of holiday pay. If this now includes the elements to which employees are lawfully entitled, the date of the last underpayment can be identified and if more than three months has passed, there should be no risk of a claim. If there have been variations to the calculation of holiday pay, the assessment will be more complicated, and patterns of leave taken will need to be analysed. If employers still pay basic salary only and do not take into account overtime and other allowances, the risk of claims going back 2 years remains.

If you require any advice or assistance in this complex area, please contact one of our employment law experts.