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Backdated Holiday Pay

If employees are underpaid for their holiday, they can bring an unlawful deduction from wages claim. A claim must be submitted within 3 months of the underpayment, or the last in any series of deductions. In the case of Bear Scotland v Fulton, the Employment Appeal Tribunal said that a break of three months or more between deductions will break the series. This significantly limits how far back employees can go, because holidays will often be three months or more apart. 

In Chief Constable of the Police Service of Northern Ireland v Agnew, the employees were underpaid for holiday dating back to when the Working Time Regulations 1998 were introduced. An industrial tribunal (as they are called in Northern Ireland) upheld their claims for backdated holiday pay for the whole period. The employer appealed on various grounds including the Bear Scotland question of whether a gap of 3 months (or a correct payment for normal pay or holiday pay in between) breaks a series of deductions.

The Northern Ireland Court of Appeal did not follow the Bear Scotland rule. They said a series of deductions was not broken by a gap of 3 months or more. Deductions do not have to be next to each other and receiving the correct pay in between deductions will not break the series. Each incorrect payment of holiday pay was linked to the last by the employer’s policy of paying holiday at the incorrect rate. That meant all holiday payments since 1998 were linked.

This case is not binding in Great Britain but has huge implications for employers in Northern Ireland. Claims brought in Great Britain after July 2015 are limited to two years’ backpay by the Deduction from Wages (Limitation) Regulations 2014. However, if further appeals are brought here, the courts might consider the principles in Agnew. And if Agnew is appealed to the Supreme Court, then any decision will be binding across the UK. Watch this space.