Supreme Court decision in Agnew increases employers’ potential exposure to historic holiday pay claims

05 October 2023

The court held inter alia that, in claims for historic underpayments of holiday pay, breaks of 3 or more months in a series of deductions will not necessarily break the chain of deductions if the deductions are linked by the same underlying cause.

Background to the case

The respondents were both police officers and civilian staff of the Police Service of Northern Ireland (PSNI). Their claim was for underpayments due to their holiday pay having historically been calculated on the basis of their basic pay only, rather than their “normal” pay which included overtime.

It was agreed between the parties that the claimants had been underpaid. As well as a dispute about the right of police officers (who are not workers in the usual sense) to claim underpayments going back further than three months, a key issue was whether underpayments were part of a “series” of deductions.

The Supreme Court's decision

Having found that police officers can claim for series of deductions, the Supreme Court held that the EAT’s decision in Bear Scotland v Fulton  [2015] ICR 221 (EAT) was wrong:

  • The period in which a claim for unlawful deductions can be brought is 3 months from the date the last payment was made (a “series” of deductions can be claimed for provided that the last deduction in the series is brought within time).
  • However that 3-month time limit does not restrict or qualify the meaning of a “series” of deductions.

A gap of 3 months or more within a series of deductions does not necessarily break the chain in the series, provided the underpayments are factually linked by the same underlying cause.

In Agnew, the Supreme Court said, the deductions were factually linked by the “common fault or unifying or central vice” that holiday pay was calculated with reference to basic pay rather than normal pay which included overtime. (The respective “series” of deductions had, on the face of it, been broken by periods when there was no overtime, and thus for those periods there was no underpayment).

The Supreme Court also held that:

  • When a worker takes leave, there is no distinction to be drawn between different types of leave (i.e. the 4-week entitlement from EU law, additional 1.6 weeks from domestic law, and any other contractual entitlement). They all form one composite pot.
  • When calculating the daily rate of normal pay, it is not appropriate to divide the number of working days in the leave period (which was 4 weeks’ leave, so 20 days) by the number of calendar days in the year. The maintenance of remuneration and what constitutes normal remuneration, as well as the reference period for calculating normal pay, are questions of fact that should be addressed in evidence in individual cases.
What does the decision mean for UK employers?

The relevant unlawful deductions provisions in Northern Ireland are identical to the unlawful deductions provisions in the Employment Rights Act 1996, although workers in Great Britain are limited by a 2-year backstop on the value of holiday backpay that can be claimed. The backstop was introduced by the Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322).

While workers in Britain are limited by the backstop, workers can now challenge linked underpayments even if there is a 3 or more month gap between them. This may significantly increase employers’ exposure to claims.

Read the judgment in full in Chief Constable of the Police Service of Northern Ireland and another (Appellants/Cross-Respondents) v Agnew and others (Respondents/Cross-Appellants) (Northern Ireland)[2023] UKSC 33