Supreme Court issues landmark decision on holiday pay calculations

16 October 2023

Over 3,300 police officers and 364 civilian employees brought claims under the Employment Rights (Northern Ireland) Order 1996 (ERO) and the Working Time Regulations (Northern Ireland) 2016 relating to underpaid holiday pay against the Police Service of Northern Ireland and the Northern Ireland Policing Board. The claims sought arrears of holiday pay going back to November 1998.

The employer argued that the police officers could not recover underpayments dating back to 1998 because the 2016 Regulations restricted recovery to sums underpaid in the three months before the claims were brought.

On 4 October 2023 the Supreme Court delivered a much-anticipated judgment in the case of Chief Constable of the Police Service of Northern Ireland v Agnew and others [2023] UKSC 23 in relation to the issue of holiday pay calculations.

One of the issues for the Court to determine was whether a series of deductions of wages (i.e. a shortfall in holiday pay) could be broken by either a gap of three months or by making one lawful payment.

Summary of decision

The Court unanimously decided that the decision issued by the Court of Appeal should be upheld on the basis that a ‘series’ of underpayments cannot be broken if there is a ‘factual link’ between the underpayments.  In this instance, the common link in each payment of holiday pay was the method of calculation i.e. basic pay only.

Impact of the decision for employers

The Supreme Court decision is binding across the UK which will largely align the position on holiday pay calculation and payment.  However, outside Northern Ireland this decision it is unlikely that it will have huge financial consequences for employers because the rest of the UK still has the statutory two-year ‘backstop’ for claims brought for unlawful deductions from wages.

Employers across the UK could see an increase in holiday pay claim being lodged including for underpayments that employers might previously have assumed were out of time although these still cannot extend back more than two years (unlike Northern Ireland where claims could potentially go back as far as the employee’s start date of employment or 1998 when the Working Time Regulations were introduced).

Holiday pay calculation is a complex issue that has not been helped by the web of case law that has emerged in recent years.  Whilst the Agnew decision bring clarification there is still a substantial amount of information for employers to digest.

As always, this advice is general in nature and will need to be tailored to any one particular situation. As a MILS client you have access to the legal advice line, template documents, as well as a number of industry experts for your assistance. Should you find yourself in the situation above, contact us at any stage for advice and assistance as appropriate.