In a claim for unlawful deductions from wages, the Court of Appeal in Northern Ireland has ruled recently that a ‘series of deductions’ still exists even if there is a gap in it of more than three months. Formerly, the Employment Appeal Tribunal (EAT) had ruled that employees could only claim for a series of underpayments if the gaps between deductions did not exceed three months.
Workers in EU member states have a right to paid annual leave under Article 7 of the Working Time Directive (WTD). The WTD does not, however, define how holiday pay should be calculated. In the UK workers are entitled to ‘normal pay’ for the four weeks of leave guaranteed under EU law, but there has been confusion over what this means and how it should be calculated.
The WTD is clear that holiday pay includes basic salary and any overtime that is guaranteed by an employer and compulsory for an employee. But what about overtime that an employee is obliged to work if it is offered and does, in fact, work regularly, but that an employer does not guarantee? In such an instance an employee taking a holiday and, as a result, missing out on non-guaranteed overtime could argue that their holiday pay should include that overtime as it too is part of their ‘normal pay’.
In 2014 several Tribunal cases relating to this issue – Bear Scotland v. Fulton and Baxter, Hertel (UK) Ltd. v. Wood and others, and Amec Group v. Law and others – were conjoined when they came before the EAT. Employees argued that the WTR is at odds with EU law in not specifying, for the purposes of calculating holiday pay, the differences between ‘normal pay’ and basic pay, and UK law should be rewritten. The employees were shift workers who were paid different rates for night or day work and regularly worked significant amounts of overtime.
The EAT interpreted the WTR as implementing EU requirements. So it includes non-guaranteed but non-voluntary overtime in calculating pay for the basic 4 weeks of holiday provided for under EU law. Only basic pay is guaranteed for the additional 1.6 weeks provided for in the WTR and any further holiday entitlement offered by individual employers. The EAT ruled that claims for underpayment of holiday pay under WTR must be brought within three months of underpayment or brought separately under the Employment Rights Act, again within three months of an underpayment.
A crucial difference in claims under the Employment Rights Act is that they can also include a series of earlier underpayments, provided that all occurred for the same reason. A series could, potentially, extend back many years, but could have no gaps greater than three months between underpayments as ruled by the EAT. In reality, however, it was thought that because such claims relate to the 4 weeks of EU-entitled holiday that were deemed to be taken before the additional 1.6 weeks allowed under WTR, the additional 1.6 weeks would, in normal circumstances and in most cases, result in a gap of more than three months, so most series would extend over no more than one holiday year.
The EAT granted permission in Bear Scotland to appeal this three month rule, but no one did so. However, when the same case later appeared before the Scottish Employment Tribunal it was argued that the rule had not been binding. That Tribunal upheld the EAT’s ruling, stating that it must apply until an established exception, thought unlikely, applied.
This brings us to the Northern Ireland Industrial Tribunal (NIIT) and the Court of Appeal in Northern Ireland (NICA) in the matter of Chief Constable of Northern Ireland Police v. Agnew.
Between 2015 and 2016 3,380 officers and 264 civilian employees of the Police Service of Northern Ireland (PSNI) claimed a total of approximately £30 million for only having received holiday pay at basic rate. PSNI used the three month rule to argue for an alternative figure of approximately £300,000. NIIT upheld the claims, declaring that the EAT had been wrong in asserting that a gap greater than three months broke a series. The NICA ruled that any judgement of what constituted a series needed to be made on a case by case basis according to common unifying faults or factors. Imposing an arbitrary time scale on such matters was inappropriate.
But the NICA went further still, and ruled that there was also no legality to the assertion that the EU-entitled 4 weeks of holiday was deemed to be taken before the additional 1.6 weeks allowed under WTR. Leave from different sources can, in fact, be taken in any order, so that previously perceived block to establishing series extending over multiple holiday years has also been removed.
The NICA ruling is not binding on Tribunals in England & Wales, but any future arguments against the EAT’s ruling in Bear Scotland are likely to draw heavily and persuasively upon it. Undoubtedly it will also carry considerable weight in any appeal to the Supreme Court, likely under the circumstances, and if the Supreme Court rules with NICA the implications for employers throughout the UK could be profound.