Holiday Pay Claims Soar: A Supreme Court Game-Changer

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This month the Supreme Court handed down their judgement in Chief Constable of the Police Service of Northern Ireland & another v Agnew & others with significant consequences for the future of holiday pay claims.

Previous Case Law

As with most employment related claims, a claim in respect of underpaid holiday must be brought within 3 months of the underpayment occurring. It is common however for an employee to have suffered this underpayment for a prolonged period before becoming aware of it. This is often not because holiday has been withheld but because it’s been calculated incorrectly, perhaps based on basic salary rather than taking into account commission and overtime (by way of example).

Underpayment of holiday pay is a ‘continuing breach’ and legislation therefore allows claims to be made for a series of underpayments/deductions even though some of the instances complained of occurred more than 3 months ago.

Prior to this decision, in England and Wales a claim for a series of underpayments or deductions could only go as far back as 2 years and would be cut short if there was a gap of 3 months or more between any of underpayments or deductions complained of.

The Supreme Court’s Judgement

It is no longer the case that a series of deductions for these claims will end if there is a gap of 3 or more months.

In making its decision, the court explained that limiting claims in this way ignored the protection that legislation intended to afford when referring to a series, namely a means by which employees would be able to raise complaints out of time in limited circumstances.

What does this mean for employers?

Although a series of underpayments can now exist even where there are substantial breaks in underpaid holiday it still remains the case that the total remedy is limited to 2 years’ worth of underpayments. This should give some comfort to employers.

Employees will also still be ‘timed out’ of bringing claims if a claim isn’t brought within 3 months of the last underpayment occurring, unless there are compelling reasons for the tribunal to grant an extension of time.

It is incredibly common for businesses to calculate holiday pay incorrectly, particularly where employees earn regular commission or bonuses, or frequently undertake paid overtime. If you have employees whose salaries vary from one month to the next we recommend reviewing how you calculate their holiday pay and if you notice that it is incorrect, start paying employees correctly as soon as possible. Although a three-month period of correct payments will no longer prevent a claim from being able to be brought, it will still limit the amount that could be claimed for.

If you have questions about how to calculate holiday pay, or are concerned about how you should address underpayments, please contact our Employment team for support.

(October 2023)