News & Insights: Employment

Historic Holiday Pay Claims – Chief Constable -v- Agnew

5 January 2024

PSNI and staff officers holiday entitlement confirmed by Supreme Court

Introduction
The landscape of employment law has changed significantly in Northern Ireland since the seismic days of The Fair Employment (Northern Ireland) Act 1976 (since amended). Due to the devolution of employment law matters to the NI Assembly, Northern Ireland is often left behind where key legislative developments are made across the water. However, Northern Irish law has found itself at the heart of a long-awaited judgment handed down by the UK’s highest court.

The recent Supreme Court judgment of Chief Constable of the Police Service of Northern Ireland v Agnew outlined that historic holiday pay claims can be brought even where there is a gap of three months or more between a series of underpayments or correct payments. The previous rule of the ‘three month break’ had been used to limit claims for holiday pay and other claims for unlawful deduction of wages since 2014.

Background
Employees in this jurisdiction, like elsewhere, are entitled to holiday pay as per the Working Time Regulations (Northern Ireland) 1998. Over 3,300 police officers and 350 civilian staff lodged claims against the Police Service of Northern Ireland in respect of unlawful deduction of wages and underpayment of holiday pay. The Claimants’ position was that their employer was incorrectly calculating their holiday pay by reference to their ‘basic pay’ only, as this served to ignore the additional elements of pay that the Claimants received, such as overtime and other similar allowances. In previous EU and UK caselaw, there existed a well-founded principle that workers should receive their ‘normal pay’ when taking holidays, which includes basic pay, regular overtime and other regular allowances.

Judgment
Examining the appellate history of the case, the Tribunal upheld these claims in the first instance, finding that the decision of Bear Scotland v Fulton was wrong to find that a gap of three months or more would automatically break a ‘series of deductions’ for the purposes of a claim for holiday pay. The PSNI later appealed to the Northern Ireland Court of Appeal. There it was held that a ‘series of deductions is not ended, as a matter of law, by a gap of more than three months between unlawful deductions nor is it ended by a lawful payment.’ The NICA also found that the method of calculation used for the officers’ holiday pay, by reference to basic pay instead of ‘normal pay’, served to link the payments as a series of deductions, as had been the case since 1998. The PSNI then appealed to the Supreme Court.

Crucially, the PSNI did not dispute that the original claimants had been underpaid. The key issue for determination was the question of how far back in time could a claim go in respect of underpaid holiday pay. The key arguments advanced in this respect surrounded the idea of a ‘series’, whereby the claim is based on a series of underpayments. The PSNI sought to argue that a series of wage deductions would be broken by a gap of three or more months between deductions, or by the payment of a lawful or ‘correct’ payment.

In handing down their seminal judgment, the Supreme Court upheld the decision of the Northern Ireland Court of Appeal, namely that the three-month break rule will not result in an automatic break of a series of deductions. In removing this rule previously established in Bear Scotland v Fulton, a claimant may still be able to claim for underpayments even where there has been a three-month gap between underpayments, as long as they form part of a series of deductions. The Supreme Court recognised that the old rule could lead to unfair results and act against the legislation’s purpose of protecting workers from exploitation.

The Supreme Court further held that making a lawful payment in the middle of a series will not necessarily break that series of deductions. Ultimately, it is a question of fact as to whether a deduction forms part of a series. When considering such claims, the Tribunal will need to weigh all relevant factors to make a determination, with reference to the value and frequency of the deductions and how they are linked by a ‘fault’. In the case of Agnew, the common fault that linked the underpayments was the basis on which the holiday pay was calculated, namely by using basic pay instead of ‘normal pay’.

In providing the lead judgment, Lady Rose noted said that the PSNI’s case had relied on a provision in the working time regulations which would ‘restrict the police officer claimants to claim only sums relating to holiday pay which they were paid in the three months before their claims were started before the industrial tribunal. The claimants say they can rely on an alternative provision in the Employment Rights (Northern Ireland) Order 1996,’ she added.
‘This provision would allow them to claim underpayments arising from a series of payments provided that the last underpayment in the series was not more than three months before they brought their claim before the industrial tribunal. Of course, if the claimants (police staff) can rely on the series extension then their claim can cover many more holidays they took in previous years, going back much further than just the three months before they lodged their claim.’

Lady Rose added that the Industrial Tribunal held that ‘all the clients could rely on the series extension and that most if not all the payments they had received were in a series for that purpose. So, there is a very substantial difference between the value of the claim depending on whether they can rely on the series extension,’ said Lady Rose. ‘That meant they could claim back over a number of years and not just over the most recent three months the employers unsuccessfully appealed to the Court of Appeal. The employers now appeal to the Supreme Court and the Supreme Court unanimously dismisses that appeal.’

The Supreme Court also addressed the issue of whether the PSNI officers were eligible to bring these claims by interpreting the Working Time Regulations (Northern Ireland) in a manner that provided equivalent rights to the police officer claimants, meaning that they could bring claims for series of underpayments under those Regulations. The PSNI had previously argued that the officer claimants were ineligible to bring the claims for a series of deductions. This issue, although decided in obiter, was therefore a welcome finding in the eyes of the claimants.

Analysis
The Supreme Court’s seminal decision finally resolves important points of principle and the long running dispute regarding the ‘cut off’ for backdated holiday pay. It means that a series of deductions for underpaid holiday pay for NI based workers could extend as far back as 1998, when working time legislation was introduced.

This decision has been overwhelmingly welcomed by a wide cross-section of society in Northern Ireland and in wider Great Britain. Undoubtedly, the decision will be most welcomed by the PSNI officers who are allegedly owed millions in holiday pay. The Police Federation for Northern Ireland, which represents rank and file officers, said the holiday pay judgement was a ‘most significant legal milestone into securing what is due to thousands of officers.’ This occurs amid a challenging period for the PSNI as the data breach scandal continues to unravel with serious repercussions for members of the force and their families in their daily lives. The PSNI now have a hefty legal bill of £40 million to pay out.

Most employers should by now have addressed any issues with their holiday pay calculations, by referring to ‘normal pay’ instead of basic pay. If any such issues remains outstanding, employers should be proactive in remedying any underpayments, especially given the lack of a two year backstop in Northern Ireland compared to other parts of the UK. Employees should also review their own holiday pay arrangements to ensure they are not missing out on their true entitlements.

Looking to the future, the possibility of legislative reform remains open as a result of Agnew’s impact, as the UK government continue to propose making potential changes to holiday entitlement and holiday pay after closing a consultation earlier in the summertime.

Should you have any employment queries, issues or concerns please do not hesitate to contact our experienced employment team at O’Reilly Stewart Solicitors who will be happy to help you navigate this complex area of the law – seamus.mcgranaghan@oreillystewart.com or +44 (0) 28 90 321 000.

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