News & Insights: Employment

Holiday Pay Calculation Decision Upheld by Court of Appeal

14 August 2019

On 18th June 2019, the NI Court of Appeal (NICA) upheld the decision of the Industrial Tribunal of 2nd November 2018 which held the PSNI and Police Authority for NI liable for a shortfall in holiday pay to police officers and civilian staff dating back to 1998.


The Background

In November 2014, the Bear Scotland decision held that employees who were regularly required to work overtime should get extra holiday pay. In other words, holiday pay should be based on “normal pay” rather than “basic pay”. A series of deductions would be automatically broken by a gap of three months between unlawful deductions or by a lawful deduction.

On foot of this decision, the UK Government introduced legislative changes which limited claims for backpay in the employment tribunals to two years. This legislation did not apply in Northern Ireland.

In April 2017, in light of the Bear Scotland decision, PSNI officers in Northern Ireland lodged claims for holiday backpay. A decision was issued by the Industrial Tribunal in November 2018. The Tribunal held the PSNI and the Police Authority for Northern Ireland liable for not including overtime payments and allowances in their calculation of the numerous Claimants’ holiday pay. It was estimated at that time that the decision would result in a required back payment of £30 million in respect of unlawful deductions over a 20 year period.

An appeal was lodged and in June 2019 the Court of Appeal in Belfast upheld the 2018 Tribunal finding.


The Appeal

It was accepted at appeal that holiday pay should be calculated by reference to “normal pay” which includes additional payments made such as overtime and allowance over a reference period prior to the holiday.

The NICA therefore deliberated on and made the following key findings in their decision: –

  1. Is a police officer a “Worker” within the meaning of the Employment Rights (NI) Order 1996 (ERO)?

If police officers qualified as “worker” within the meaning of Article 3(3) of the ERO, they would be entitled to bring claims for unlawful deduction of wages. If deemed not to be a “worker”, any claim taken by the police officers would be limited to a claim under the Working Time Regulations and would be unable to take a claim under the ERO.

The NICA held that police officers did “not fall within the statutory definition of a worker contained in Article 3(3) ERO”.

  1. Does the Principle of Equivalence require that police officers must be treated as entitled to a remedy under the ERO for unlawful deductions from wages?

“The community law principle of equivalence requires that national remedies for breaches of Community rights must be no less favourable that those available in similar domestic proceedings.”

The NICA held that police officers did fall within the autonomous Community law concept. As such, they were entitled to pursue claims under the ERO.

  1. Is the “series of deductions” under the ERO ended, as a matter of law, by a gap of more than 3 months between unlawful deductions and / or by a lawful payment or is this a question of fact in each case?

Agreeing with the decision of the Industrial Tribunal to reject Bear Scotland, the NICA held that a series of deductions is not ended by a gap of more than 3 months between unlawful deductions nor is it ended by a lawful payment.

Whether there is a series will be a question of fact on each individual basis and will require the identification of the factual link in the alleged series.

  1. Is the 4 weeks leave under the Working Time Directive (WTD) taken first, before the additional 8 days leave under the WTR, followed by any other sources of annual leave?

The Bear Scotland decision divided leave into two sources; the 20 days leave of which workers are entitled to under the European Working Time Directive and the additional leave entitlement granted to workers under domestic law. Following the Bear Scotland decision the stance taken was that workers would use their 20 day European entitlement first followed by any additional domestic entitlement and then any contractual entitlement.

The Industrial Tribunal took a different approach to Bear Scotland and held that leave should be treated as a fraction of the whole of a worker’s entitlement.

The NICA held that a worker has an entitlement to all leave from whatever source and there is no requirement that leave from different sources be taken in a particular order.

  1. What is the correct method of calculation of overtime to be taken into account in holiday pay?

In calculating the correct method of calculation overtime that forms part of a worker’s “normal pay”, the NICA used a 12 month reference period example. It held that it would not be correct to use the divisor of 365 as a divisor to 20 working days as 365 includes working and non-working days. The NICA deemed a divisor of 260 appropriate in its example.

  1. What is the appropriate reference period for the assessment of normal pay?

It was agreed by all parties at appeal that the appropriate reference period was fact sensitive and to be determined on a case by case basis.

The full NICA judgement can be read at:



At this time, it is estimated that the cost of rectifying the error in line with the decision of the NICA could cost the PSNI and Police Authority approximately £40 million with costs continuing to rise.

It is confirmed that the PSNI has sought leave to appeal the NICA decision to the UK Supreme Court. Should this application be accepted, the UK Supreme Court will hear and issue its own judgement on the decision held by the Industrial Tribunal and the NICA.  If leave to appeal is not granted by the UK Supreme Court, the NICA decision will be the binding decision in NI.

In a poll carried out by Legal Island in conjunction with O’Reilly Stewart during the Employment Law at Eleven Webinar on 5th July 2019, 80% of listeners confirmed that they had employees who regularly worked overtime, and that 25% of listeners had already had employees or their representative give notice of their intention to claim for backpay.

There is a very real risk to employers that employees / workers who receive paid overtime, allowances or other regular payments will lodge claims for backpay. With no two year limit on the ability to claim backpay in Northern Ireland and the NICA decision that claims can be made dating back to 1998, the financial exposure for employers is significant.

Employers are encouraged to take a proactive approach to the issues. Lack of action in light of the decision of NICA, will likely not be accepted by the Tribunal and the “wait and see” approach is no longer an option.

O’Reilly Stewart’s Employment Team can assist you in these matters. Please contact Seamus McGranaghan or Hannah McGrath to discuss further.



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