UK Supreme Court backs worker-friendly underpayment ruling

The ruling (48-page /353KB PDF) may involve small sums in each individual case but the court acknowledged that “the answer to the legal question now before us may have a bearing on thousands of claims each year and so have a cumulative impact which is very significant indeed”.

It may have the greatest impact in industries where a large part of pay is made up of overtime or commission. Such variable payments can give rise to arguments around what level of ‘normal’ pay is payable for the four weeks annual leave guaranteed by the Working Time Regulations, which stem from EU law. Basic pay only can be paid for the UK specific statutory entitlement of 1.6 weeks additional annual leave.

The Supreme Court decision stemmed from a police pay case between the Police Service of Northern Ireland (PSNI) and Alexander Agnew and other police offers and civilian staff of the PSNI. It began as an Industrial Tribunal claim seeking holiday back pay dating back to 1998 that is based on ‘normal’ pay rather than basic pay.

The decision rejected a restriction on backdated holiday pay claims established by the Employment Appeals Tribunal (EAT) in a case involving Bear Scotland.

The EAT had decided that in relation to a claim for a ‘series of deductions’, such as successive underpayments of holiday pay, any series punctuated from the next succeeding series by a gap of more than three months was out with normal time limits. 

“The decision is good for workers because it confirms that a three month gap in a ‘series of deductions’ claim under unlawful deductions from wages provisions will not result in holiday pay claims being time barred,” said Pinsent Masons employment law expert Stuart Neilson.

“As the vast majority of workers would have gaps of three months or more between holidays, if the Bear Scotland case was followed, this would in most cases limit the period for which holiday pay arrears could be claimed to no more than 12 months. The Supreme Court has confirmed that the Bear Scotland decision was wrong in this respect as it would defeat the purpose of the series of deductions rules which were intended to protect vulnerable workers,” he said.

Pinsent Masons employment law expert Craig Patterson said that the judgment means there is no automatic rule that a three month gap breaks a series of deductions, but that whether a ‘series of deductions’ in respect of which an arrears claim can be raised will still depend on the specifics of that situation.

He also said that other laws might restrict the impact of the ruling.

“Claims brought in Great Britain on or after 1 July 2015 are subject to the Deduction From Wages (Limitation) Regulations 2014, which established a two year limitation on how far back in time workers’ employment tribunal claims for some deduction from wages, including holiday pay, can go,” said Patterson. “This does not apply in Northern Ireland.”

The Supreme Court also made comments around distinguishing between different kinds of leave. It confirmed that there are no rules about whether the four weeks leave guaranteed by the Working Time Regulations, which stem from EU law, is taken first before other leave entitlements are used, such as the UK entitlement to additional leave of 1.6 weeks a year.

“The Supreme Court said that, if it is not practical to distinguish between different types of leave, then all the leave to which the worker is entitled must form part of a single, composite pot,” said Patterson. “This may mean separate leave pots are retained where this is practicable, for example, through clear policy frameworks, but a composite pot approach does seem to be the direction of statutory travel.”

“The UK government. suggested, as part of post-Brexit consultation earlier this year, that existing annual leave entitlements are combined into a single pot but we await details of what this will look like, particularly in relation to the rate of pay,” he said.

Employment expert Anthony Convery said: “The Supreme Court also approved the Northern Ireland court’s position that when calculating a daily rate for overtime that forms part of a worker's normal pay, it was not a lawful approach to divide the number of working days in the four week leave period (20) by the number of calendar days in the reference period. This may impact some employers’ calculations.”