Supreme Court Makes Claims for Underpaid Holiday Pay Easier

David Reid
Director
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The UK Supreme Court has ruled that employees can claim for a series of underpayments of holiday pay, even where there has been a gap of more than three months between different occasions of underpayment. This case reverses a landmark decision from the Employment Appeal Tribunal in 2015.

The case concerned police officers and civilian police staff in Northern Ireland, who brought claims that they had only been paid their basic pay during annual leave, rather than the required average rate of pay including overtime. The employees succeeded in their claims, but a question which then arose was how far back the employees could claim in respect of this underpaid holiday pay.

It is well-established that an employee can bring a claim for a series of underpayments of holiday pay, where there has been a series of similar underpayments. However, following an Employment Appeal Tribunal decision in 2015, where any two underpayments of holiday pay in the series were more than three months apart, this was held to break the series and the employee could then go no further back in time with their claim.

Therefore, employers had some assurance that if there was a gap of more than three months between each underpayment, or there had been a correct payment in-between these underpayments, that would effectively limit the value of the claim.

However, the recent Supreme Court case has changed all of this. The position is now that there no longer needs to be less than three months between each underpayment for it to count as a series of underpayments. Furthermore, the fact that an employer makes a correct payment in-between these underpayments will no longer break the series either.

Although this case was about holiday pay, the claims were brought under the laws on unlawful deductions from wages. Therefore, the same principle will likely apply to other types of case where an employer has regularly underpaid an employee on the same basis or for the same reason each time.

As this case was brought in Northern Ireland, the successful claimants may now be able to recover compensation for many years of underpaid holiday pay. The situation would be different for an employer in Great Britain, where there is a law limiting unlawful deductions holiday pay claims to a period of two years back from the date of the claim.

In practice, most employers do now pay employees their holiday pay based on average earnings, taking into account “extras” such as overtime, commission and bonuses. However, for any employers who are still paying employees with variable earnings basic pay only for their holidays, this decision potentially increases the amount of compensation their employees may be able to recover.

It is important to note that despite the case concerning legislation in Northern Ireland, there are identical provisions in the laws of England, Scotland and Wales. Therefore, this decision affects all UK employers.

You can read the judgment here.

If you would like to discuss the implications of this case for your business, or if we can support you on any other employment law matter, please do not hesitate to contact a member of the team on 0141 331 5150.

Topics: Employment Tribunal, Holiday Pay, Unlawful Deduction from Wages