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Changes to Calculation of Holiday Pay Claims

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A significant judgment was released by the Supreme Court in the case of PSNI & Others v Agnew & Others on 4 October 2023.

This case was a Northern Irish case which considered the issue of holiday pay, however its outcome has implications for employers across both Northern Ireland and Great Britain as Supreme Court decisions are binding in all UK jurisdictions.

The case concerned over 3,000 police and civilian employees who were bringing claims for underpaid holiday dating back to when the Working Time Regulations 1998 (“WTR”) were introduced. For the period of time in question, the employees’ holiday pay had been calculated by reference to their basic pay only, without consideration of their normal pay which includes regular guaranteed overtime and certain other regular payments/allowances.

Although it was accepted by PSNI that the holiday pay had been underpaid (and therefore that there had been unlawful deductions), PSNI sought to argue that the relevant chain of unlawful deductions was broken in cases where there was a gap of more than three months between the underpayments. If this argument had been accepted their liability would have been limited to around £300,000, as opposed to over £30 million if it was not.

The Supreme Court held that as all the underpayments were factually linked by “common fault or unifying or central vice”, the fact that there may have been a gap of three months or more between the underpayments (for example, when employees had taken periods of annual leave more than three months apart during any given year) did not necessarily mean that that the chain had been broken. The Supreme Court noted that the aim of the legislation was to protect workers against exploitation and that when considering whether there has been a series of deductions “all relevant circumstances must be taken into account, including… their similarities and differences, their frequency, size and impact, how they came to be made and applied” amongst others. The Court therefore found in favour of the Claimants and held that the Claimants could claim in respect of underpaid holiday dating back much further than originally anticipated by PSNI.

Paying these claims is likely to set the Police Service of Northern Ireland (PSNI) back over £30 million. If these claims had been brought in Great Britain, the liability for PSNI would likely have been much less as there is a two-year backstop on how far back holiday pay claims can be brought and therefore the liability would have been capped at two years of underpayments (which could still be significant, particularly for small employers).

If you are an employer and are concerned about the implications this may have on your business (or whether you have been paying holiday pay correctly) or if you are an employee who is concerned they have not been receiving the correct holiday pay, please get it touch with our dedicated Employment Team who can provide you with the required assistance.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
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