Holiday pay remains a hot topic. In July, the Supreme Court handed down its judgment in the case of Harpur Trust v Brazel which confirmed that the accrual of 12.07% of pay to compensate for holidays would not work for part year employees.
Last week, on the 12 January 2023, the Department for Business, Energy & Industrial Strategy launched a consultation on a proposal to overturn the effects of the Supreme Court’s decision in Harpur Trust v Brazel. As it stands, there is not one solution that fits all. This is causing some concern and confusion for business as to how to apply the judgment and if the judgment should be followed at all, in light of the BEIS consultation. Ultimately, businesses need to understand their current contracts, the status of the people they are engaging, look at any potential exposure and then consider potential solutions. We recently hosted a webinar, to help you navigate dealing with holiday pay for your part year employees, which you can watch here.
Yet another judgment affecting holiday pay is expected to be handed down imminently. The Supreme Court heard the case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others (“Agnew”) in mid-December. Whilst the case originates in Northern Ireland, it could significantly impact employers all across the UK. The Agnew case concerns whether claims of unlawful deductions from wages can be brought where there are gaps of three months or more between a series of underpayments. The claims within Agnew surround the loss of earnings when holiday pay is calculated using basic salary rather than normal pay which includes overtime and other allowances, such as shift allowance. As per section 13 of the Employment Rights Act 1996, the definition of a deduction is where the total wages paid to the employee is less than the total amount of wages properly payable to the employee and this deficit is treated as the deduction.
If this occurs, an unlawful deduction claim can be brought by the worker which would allow them to claim for those unpaid or underpaid wages in the employment tribunal subject to the two-year backstop i.e. the deductions cannot go back more than two years before the date of the claim. As is the norm with tribunal proceedings, the claim must be brought within three months from the date of payment of the wages from which the deduction as made otherwise it is out of time. The current statutory position, as per section 23 of the ERA 1996, is where a complaint is brought in respect of a series of deductions or payments, the time limits begin to run with the last deduction of payment in the series. The Employment Appeal Tribunal Scotland’s decision of Bear Scotland Ltd v Fulton and another UKEATS/0047/13 (“Bear Scotland”) is the leading case on this point, and it considered what is meant by a series of deductions. Bear Scotland concluded that a gap of more than three months between two deductions of non-payments would break the series.
The Supreme Court in Agnew is expected to disagree with the approach taken in Bear Scotland regarding a three-month gap between deductions breaking the series. It is likely to rule that provided there is a link between the deductions, they can form a series even if they are more than three months apart up to the two-year limit.
It should be noted that this two-year limit could be extended in claims where concerns regarding the individuals’ employment status are involved i.e. the individual is arguing they are a worker rather than self-employed and is therefore entitled to holiday pay. As was the case in Smith v Pimlico Plumbers, where the individual has not received any holiday pay during his engagement as he was incorrectly deemed to be self-employed rather than worker, it is likely that this two-year backstop would be extended so that the individual can recover its holiday pay entitlement for each year worked.
If Agnew is ruled in the way commentators expect, the impact of the decision, is that it is more worker friendly and employers should be prepared for workers bringing unlawful deduction claims with older deductions potentially increasing any underpayment liability which if combined with the decision in Harpur Trust may mean that employees could bring larger claims for underpaid holiday.
If your organisation is likely to be affected by any of these judgments, or you would like to review your current policies and procedures, please contact Simon Whitehead or a member of our Recruitment and Workforce Solutions Team.
