Following a ruling by the Supreme Court, many UK workers may be entitled to thousands of pounds in miscalculated holiday pay.
The judgment, handed down last week (4 October 2023), determined that thousands of police staff in Northern Ireland would be able to reclaim up to 35 years’ worth of miscalculated holiday pay, amounting to a bill of more than £40m.
The court concluded in Chief Constable of the Police Service of Northern Ireland v Agnew that a three-month interval between underpayments of holiday pay did not automatically sever the chain of deductions.
The chief constable of the Police Service of Northern Ireland (PSNI) and the Northern Ireland Policing Board accepted that the respondents were underpaid but disputed the period for which they were entitled to recover.
The Supreme Court, however, “unanimously” dismissed the appeal. According to the court, the PSNI’s approach was based on a provision in the Working Time Regulations that “restrict the police officer claimants to claim only sums relating to holiday pay that they paid in the three months before their claims were started before the tribunal”.
This Supreme Court’s decision brings the rest of the UK into line with this judgment, which means that gaps of more than three months will no longer prevent individuals from bringing claims for a series of underpaid holidays.
What did the court rule?
In 2019, the Northern Ireland Court of Appeal upheld a ruling that staff had not received the holiday pay they had been entitled to for many years.
More than 3,700 PSNI officers and civilian staff filed claims with the industrial tribunal to recover sums they should have been paid as part of their holiday pay since November 1998.
They were not paid these sums because for many years it was assumed that it was adequate to pay respondents an amount equal to their basic wage for the weeks they were on holiday.
However, according to European case law, they should have been paid their “normal” pay while on vacation, not only their basic pay. Because many of the respondents augmented their pay by working mandatory overtime, the regular pay should have included an element for overtime.
What are the implications for employers?
This a landmark case and one that will have a significant impact on how employers calculated and managed holiday pay for their workers. The ruling now imposes rules on employers to ensure that holiday pay is calculated in line with the hours worked and undoubtedly we could see retrospective claims on holiday pay that have been miscalculated.
Employers should take time to review and evaluate their holiday pay practices before they are potentially hit with a host of back claims, which in the UK could go back as far as two years and much more in Northern Ireland, where claims can go back to 1998.
The ruling is likely to generate concern for companies that have failed to include overtime payments, allowances or certain commission payments and have undervalued their employees’ holiday pay.
What should employers do now?
The key initial task for employers is to review the approach to the calculation of holiday pay as employers need to ensure that they are calculating holiday pay to take account of all aspects of normal pay.
It is important that holiday pay is paid correctly to reduce the risk of claims. Case law has made it clear that holiday pay should be related to normal pay including items such as regular overtime and commission.
The Agnew case relates to Northern Ireland where there is no backstop for backdating claims, whereas the rest of the UK has a two-year backstop.