In this case, the EAT has applied the Supreme Court's decision in the Agnew case (see our previous alert here), that underpayments of holiday pay are not broken by a correct payment nor a gap of more than three months between underpayments.
Background
Claims for underpayments of holiday pay are commonly brought as claims for unlawful deductions from wages. Such claims must be brought within three months of the deduction in question, or within three months of the last deduction where there is a series of underpayments.
In the landmark case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others, the Supreme Court overturned a previous EAT decision which had held that a series of unlawful deductions is broken by a gap of three months or more. Instead, the Supreme Court concluded that when determining whether there is a series of deductions, all relevant circumstances must be taken into account, including the similarities and differences between the deductions, their frequency, size and impact, how they came to be made and applied, and what links them together. In Agnew, the deductions were linked by the common fault of the employer paying holiday pay based on basic pay only, with the result that the series was not broken by a correct payment or a gap of three months or more between deductions.
Facts
Ms Deksne commenced employment with Ambitions Ltd in 2017, on a part-time basis. She claimed that she had been underpaid holiday pay from August 2020.
Before the tribunal, Ambitions Ltd conceded that it had calculated Ms Deksne's holiday pay incorrectly because it had included in its 52 week averaging calculations weeks in which she did no work. However, the tribunal found that Ms Deksne's claims for holiday pay deductions for December 2020 and before were presented out of time because there was a gap of more than three months between the relevant deductions, and Ambitions Ltd had already corrected an underpayment of holiday pay for July 2021, so it was clear that the series was broken.
Ms Deksne's appeal to the EAT was successful. The EAT noted that the tribunal's judgment pre-dated the Supreme Court's decision in Agnew. It held that, following that decision, it was clear that whether deductions of wages constitute a series is essentially a question of fact answered by taking account of all relevant circumstances. A gap of more than three months, or the existence of a correct payment, did not break the series. All underpayments of holiday pay were based on the same calculation error and were therefore part of a series. Accordingly, the EAT concluded that the only possible outcome was to uphold Ms Deksne's claim for holiday pay going back to August 2019 (i.e. the two year backstop).
What does this mean for employers?
This case illustrates how the Agnew decision has made it easier for workers to claim historic underpayments of holiday pay. While the two year backstop does provide some relief for employers in Great Britain, employers in Northern Ireland (and possibly employers of public sector workers in the rest of the UK) face potential liability as far back as the beginning of a worker's employment or 1998 – when the Working Time Regulations came into force. It is important to note though that while a three month gap between deductions will not break a series, the worker must still bring a claim within three months of the last deduction.
Employers that have not done so already would be well advised to audit their holiday pay compliance to identify the extent of any potential historic liabilities.
