189: Northern Ireland Court of Appeal ruling on unlawful deductions in holiday back-pay claims

This article was written by Paulette White, Paralegal
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In Chief Constable of the Police Service of Northern Ireland and another v Agnew and others, the Northern Ireland Court of Appeal has ruled that a gap of more than three months between holidays did not amount to a break in a series of deductions for the purposes of making a claim for holiday back-pay.

This casts doubt on the Employment Appeal Tribunal’s (EAT) decision in Bear Scotland v Fulton and means that a series of unlawful deductions from wages can be established in historic holiday pay claims by 3,664 police force employees, some going back as far as 20 years.

In 2014, the EAT held in Bear Scotland v Fulton that a gap of more than three months between holidays would break a series of deductions in a claim for unlawful deductions from wages. Since most people have gaps of more than three months between holidays, this effectively ruled out most claims for long periods of back-pay. In England, Wales and Scotland, claims for underpaid holiday have also been limited by the Deduction from Wages (Limitation) Regulations 2014 which limit claims to two years’ back-pay from 1 July 2015, but Northern Ireland did not introduce similar legislation. This latest decision is not binding in Great Britain, so there is now a significant divergence between Northern Ireland and Great Britain.

3,300 police officers and 364 civilian employees brought claims for historic underpayment of holiday pay, in some cases going back to 23 November 1998, when the Working Time Regulations (Northern Ireland) came into effect. During this time, their holiday pay was paid at a basic rate, excluding overtime and allowances. The claimants argued that their normal pay and allowances should have been included. Both the Northern Ireland Industrial Tribunal and now the Northern Ireland Court of Appeal upheld the complaints, ruling that gaps of more than three months between holidays within a leave year did not break a series of deductions relating to holiday pay.

The Court of Appeal noted that there was no statutory definition of what amounts to a series of deductions and that a series could be constituted by deductions which were repeated sufficiently often, but occurred at different time intervals and in different amounts. The Court concluded that each unlawful deduction was linked to its predecessor by the ‘central vice’ that holiday pay had been calculated by reference to basic pay rather than normal pay. This method of calculation effectively linked all payments of holiday pay consistently since 23 November 1998.

The Northern Ireland Court of Appeal also held in this case that there is no requirement for leave from different sources to be taken in a particular order, again disagreeing with the EAT’s ruling in Bear Scotland v Fulton that the four weeks’ leave under the EU Working Time Directive is taken first. The Northern Ireland Court of Appeal held that leave could not be separated out into the four weeks’ EU leave and the additional 1.6 weeks’ leave under the Working Time Regulations. An individual’s holiday entitlement should instead be considered a ‘composite whole’, with each day’s leave consisting of entitlement from all sources taken together.

The Court refused to provide guidance on the correct reference period for calculating normal pay for holiday pay purposes since this will depend on the facts in each case. However, it encouraged the parties to agree a pragmatic, administratively-friendly method of calculation based on average pay over a rolling 12-month reference period immediately preceding the period of leave.

This judgment is expected to cost the police force in Northern Ireland around £30 million and will have a significant impact on public and private sector employers in Northern Ireland. It may also affect employers with operations covering Northern Ireland and Great Britain. Although not strictly binding in Great Britain, this decision may become relevant if it is appealed to the Supreme Court, since the outcome would then be binding throughout the United Kingdom. The Northern Ireland Court of Appeal’s judgment may also be persuasive if a further appeal were to be brought in Great Britain in relation to any of the points raised.