In a recent and long-awaited case (heard back in December 2022), the Supreme Court ruled a group of police officers and civilian employees could pursue their claim for unpaid holiday pay dating back to November 1998.  The court decided that the underpayments could form a series of deductions, notwithstanding the fact that there may have been a gap (or gaps) of more than three months between the deductions.

Initially bringing their claim in the Industrial Tribunal in Northern Ireland, 3,380 police officers and 364 civilian employees claimed underpayments of holiday pay that had been based on their basic rate of pay (their salary without regard to overtime and allowances) rather than their "normal pay" (which includes these elements). For quite some time, this was standard practice. However, case law in the UK and European Court of Justice in the interim decided this was wrong for the four weeks holiday under EU law and that the calculation should, instead, have been based on the employees' "normal pay".

The fact that there had been underpayments was accepted. The holiday pay should have included an element for overtime because many of the employees regularly supplemented their pay by working compulsory overtime.

However, the Police Service argued that the employees could not recover the underpayments as the Working Time Regulations (Northern Ireland) 2016 (the 2016 Regulations) restricted recovery to sums underpaid in the three months before the claim was brought. 

That would have meant a difference between a liability of £30 million on the one hand or £300,000 on the other.

Status of the police officers

The Employment Rights (Northern Ireland) Order 1996 (the ERO) provides a more advantageous stance, allowing underpayments arising from a series of payments to be claimed within three months of the last underpayment in the series (the series extension). However, this only provided an avenue for claims brought by the civilian workers. The police officers were neither employees, nor workers for the purposes of the ERO and so could not rely on the series extension. 

As such, the key question facing the court in Chief Constable of the Police Service of Northern Ireland and anor v. Agnew and ors was whether the police officers could claim for arrears going back to November 1998. 

In dismissing the Police Service's appeal, the Supreme Court upheld the decision of the Court of Appeal (and, in turn, that of the Industrial Tribunal) that the police officers could pursue their claims for unpaid holiday dating back to 1998.  The court recognised the clear advantage given under the ERO through the series extension in comparison to the 2016 Regulations and allowed the police officers to rely on the series extension. 

Applying the EU principle of equivalence (which sets out that national remedies for infringement of EU rights must be no less favourable than those available in similar domestic proceedings), the Supreme Court found that words to the effect of the series extension had to be read into the 2016 Regulations. As such, the police officers were also entitled to pursue a claim on the basis that their underpayments from 1998 to the present day formed a series.

What is a series?

The Supreme Court further set out that, in this context, the word "series" was to be given its ordinary meaning of a number of things of a kind which follow each other in time. Consequently, deciding whether a claim regarding two or more deductions will constitute a series is a question of fact which must take into account all relevant factors, including: the similarities and differences of the deductions; their frequency, size and impact; how they came to be; and what links them together. Here, for instance, each unlawful underpayment was linked by the common fault of the holiday pay being calculated by reference to basic pay only. 

The court went on to consider circumstances which may break a series, as well as setting out some more general guidance points on holiday pay.  It concluded that:

• neither a gap of more than three months between deductions or a lawful payment will necessarily be sufficient to break a series;
• there is no legal requirement to draw a distinction between EU leave (the four weeks' leave mandated by EU law), the additional 1.6 weeks' leave required by domestic law and any other leave offered as a benefit to employees – as employees are likely to think of their leave as one unified store, there is no reason the court should not do the same;
• holiday pay should be calculated by using the number of working days in the reference period rather than the number of days in a year; and
• the appropriate reference period in any case will be a question of fact. 

What does this mean for employers and employees?

For employers, this is another reminder to undertake an audit in relation to holiday pay and make sure this is being calculated properly, given this case could lead to exposure spanning longer than previously thought. 

For employees, on the other hand, the "three-month gap" rule can no longer be used by employers to defend claims of underpayment. As such, claims can be brought for historic deductions, regardless of how far apart they are, or whether correct payments have been made in between, so long as they share some common fault. 

Importantly, however, in Great Britain there remains a two-year limit on unlawful deduction claims brought after 1 July 2015 under the Wages (Limitation) Regulations 2014. Exposure to claims may, therefore, be more limited in Great Britain than in Northern Ireland where there is no equivalent limitation. In Great Britain, we are unlikely to see the sorts of sums and timescales we see in this case, in the absence of the repealing of the legislation.