The claims date back 20 years to when the Working Time Regulations 1998 were first introduced leaving the PSNI open to a reported £40 million holiday pay bill.
Claims were lodged in the Industrial Tribunal against the Chief Constable by 3,380 police officers and against the Policing Board by 364 civilian employees in 2015/16. The claims were brought in relation to holiday pay being calculated by reference to "basic pay" rather than by reference to "normal pay" which includes basic pay and matters such as overtime and various allowances over a reference period.
The Northern Ireland Court of Appeal brought into question the "three month gap" rule set out by the Employment Appeal Tribunal in Fulton v Bear Scotland. To explain the rule – holiday pay claims brought as unlawful deductions claims must (unless not reasonably practicable) be brought within three months of the underpayment or where there is a series of underpayments within three months of the latest underpayment. The EAT confirmed in Fulton v Bear Scotland that providing there has been a three month gap in underpayment of holiday pay the chain of unlawful deductions will be broken. The Northern Ireland Court of Appeal disagreed and found such an approach would lead to "arbitrary and unfair results". The Court went on to say that the identification of the factual link in the alleged series is what answers the question of whether correct payments of holiday pay breaks the series.
In Bear Scotland it was held that EU leave is deemed to be taken first, followed by UK leave and then contractual leave. Where UK leave (the extra 1.6 weeks granted under regulation 13A of the Working Time Regulations 1998) and contractual leave is paid at the appropriate basic rate of pay, it is likely any chain of underpayments will be regularly broken, thus limiting the potential for any back pay. The Northern Ireland Court of Appeal in Agnew disagreed and held that the different types of leave were indistinguishable from one another. This finding would inevitably reduce the chances of a break of three months or more between underpayments.
The Northern Ireland Court of Appeal agreed that the reference period is a question of fact in each case and that the parties should seek to agree "a pragmatic, administrative-friendly method for calculating and paying "normal pay" based on averages taken over a rolling 12 month period immediately preceding the period of leave". However, the Court was clear that there is no obligation on the parties to take this approach.
This case has been remitted to the Industrial Tribunal for a financial conclusion of the matter, using the guidance of the Court of Appeal. We will keep you updated with regard to any appeal to the Supreme Court.
The impact of this decision is huge for the PSNI due to the claims dating back to 1998. Northern Ireland employers will be concerned that this case has opened the floodgates to claims dating back to 1998 without the comfort of the three month gap rule.
It is also worth noting that the Court of Appeal was critical of the continued practice of only paying basic pay, despite high profiles cases highlighting the issue. For some time tribunals have had a degree of sympathy for employers, however it would appear to be clear in light of this case and other recent holiday pay decisions that any grace period is coming to an end.
Although this is a Northern Ireland case, it will create interest among employees in the UK. The direction of travel is clear that holiday pay must reflect "normal pay" and so employers who have not already done so should take proactive steps to ensure holiday is paid at the appropriate rate. Consideration should also be given to any risk with regard to backdated claims.
The impact in the UK is currently limited in light of the two-year backstop on unlawful deductions claims, which is not applicable in Northern Ireland. It is worth noting that the legality of the two-year backstop was brought into question in the case of King v Sash Windows by the Court of Justice of the European Union. However, we understand this case has settled before returning to the UK Court of Appeal. For now, the two-year backstop remains in the UK, giving some comfort to employers.