PSNI holiday pay case could have UK-wide implications

As a result of Northern Ireland not enacting legislation to mirror the two year cap on holiday claims in force in Great Britain since July 2015, employers in the region have relied upon the three month gap rule set out in the Bear Scotland case to try to limit historic liability on holiday pay claims. The judge in the Bear Scotland case held that a gap of more than three months in a 'series of unlawful deductions' from holiday pay breaks the series, meaning that limitation provisions kick in to restrict claims for back pay.

However, in this week's ruling in favour of Police Service of Northern Ireland (PSNI) police officers and civilian staff, the Northern Ireland courts explicitly rejected this approach on the grounds that it can "lead to arbitrary and unfair results" and there was "nothing in the [Employment Rights (Northern Ireland) Order] which expressly imposes a limit on the gaps between particular deductions making up a series".

The Court of Appeal ruled that back payments of holiday pay owed to PSNI staff should reflect overtime and allowances paid during a 'reference period' before the holiday, as well as basic pay; confirming an earlier decision by the industrial tribunal. PSNI staff affected by the case could be owed an average of £10,000 worth of back payments stretching back over 20 years, with a combined value of £40 million, following the appeal court's verdict, the BBC has reported.

However, the appeal court went further than the tribunal in some respects, ruling that the relevant 'reference period' was the number of days that worker had actually worked in the previous year, rather than the full calendar year. It also found that what should be caught by the definition of 'normal pay' for each worker was a question of fact, and urged the parties to agree a "pragmatic, administration-friendly method" for settling individual claims.

Belfast-based employment law expert Craig Patterson of Pinsent Masons, the law firm behind Out-Law, said that the court had "confirmed Northern Ireland's divergence from the Great Britain position on the potential liability for holiday claims".

"Given the sums of money at stake, it could reasonably be expected for this case to progress to the next stage – i.e. the UK Supreme Court," he said. "If that happens, it is possible the Supreme Court justices could approve the NI Court of Appeal decision, in which case employers in Great Britain as well as Northern Ireland could be exposed to significantly larger claims owing to the rejection of the three month gap rule set down in Bear Scotland."

Patterson said that many companies in Northern Ireland took action on historic holiday pay liabilities following a series of British cases in 2014. However, the Court of Appeal's ruling will serve as a warning to those employers in Northern Ireland who have not addressed the issue of the potential consequences of not doing so, he said.

"Following this ruling, businesses should do three things: firstly, if they haven't already done so, health-check their payment practices and make sure they are compliant; assess their potential liability if they identified a current or historic issue; and consider or take advice on how they wish to proceed," he said.