Background
The Respondents constitute lead claimants selected from 3,380 police constables and 364 civilian employees of the Police Service of Northern Ireland. In line with case law the Appellants accepted that the Respondents were only paid basic pay when they should have been paid "normal pay". The question on appeal is the extent of the remedy.
Key legislation:
- The Working Time Regulations (Northern Ireland) 1998 and 2016 (together referred to as "the WTRs (NI)"). These pieces of legislation implemented important EU Directives on working time requiring Member States to ensure workers are entitled to at least four weeks' paid annual leave. For many years it was interpreted that holiday pay should be equivalent to basic pay. Case law has moved on and now makes it clear that holiday pay should relate to "normal pay".
- The Employment Rights (Northern Ireland) Order 1996 ("the ERO").
The Series Extension
The Appellants relied on a restriction under the WTRs (NI) that would limit the recoverable sums underpaid to sums owed in respect of the three months before the claims were brought. The Respondents rely on an alternative provision under the ERO which allows a claim for underpayments arising from a series of payments, providing the last underpayment in the series was not more than three months before the claim was brought. This is referred to as the "Series Extension".
Industrial Tribunal
The Industrial Tribunal held that the Respondents could rely on the Series Extension and that the majority of payments were in a series for that purpose.
Court of Appeal
The Appellants appealed to the Court of Appeal where their appeal was dismissed. The Appellants appealed to the Supreme Court.
Supreme Court
In a unanimous decision the Supreme Court dismissed the Appellants' appeal.
Statutory provisions
The Supreme Court clearly set out two routes for bringing holiday pay claims:
- A complaint can be brought under the WTRs (NI) that an employer has failed to pay statutory holiday pay. The complaint can usually only extend back three months from the date of the claim.
- The ERO provides workers with a right not to have unauthorised deductions from wages (wages include holiday pay). The ERO includes the Series Extension as defined above and so it is much more favourable to the worker.
The Appellants conceded that the civilian staff Respondents could bring a claim under the ERO but maintained that the police officers could not because they are not employees or workers for the purposes of the ERO. The rights under the WTRs (NI) expressly extend to police officers.
Can the Series Extension apply to police officers?
Yes. The Supreme Court held that the EU principle of equivalence (national procedural rules applicable to EU rights must not be less favourable than those governing similar domestic actions) was infringed by the inability of claimants under the WRTs (NI) to benefit from the Series Extension which is available under the ERO. The Court of Appeal had been correct to find that the WTRs (NI) and the ERO are so similar that they should be regarded as similar domestic proceedings requiring equivalence. The Supreme Court considered the appropriate remedy for the breach is to construe the WTRs (NI) so that they comply with the EU principle by reading the Series Extension into the WTRs (NI).
The three month gap rule – Bear Scotland
Many employers have relied on the "three month gap rule" referred to in the case of Fulton v Bear Scotland to limit the extent of back pay in holiday pay cases. A re-cap of the rule – holiday pay claims brought as unlawful deductions claims must (unless not reasonably practicably) 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 three- month gap rule has been brought under question in recent case law.
The end of the three-month gap rule?
The Supreme Court agreed with the Court of Appeal that it mattered not that the interval between payments was from time to time in excess of three months, and these intervals of more than three months did not, in and of themselves and as a matter of law, break the series or bring it to an end. The Supreme Court held that the Court of Appeal had been correct to find that each unlawful deduction was linked by the common fault that holiday pay had been calculated by reference to basic pay only. According to the Court what constitutes a series is a question of fact that must be answered in light of all relevant circumstances. A gap of more than three months between an unlawful deduction will not be fatal to all claims.
Other issues
The Supreme Court also held that there is no legal requirement that leave derived from different sources must be taken in a particular order. Further, reference periods when calculating holiday pay are a question of fact and it is not appropriate to use the number of calendar days in the reference period when calculating normal pay.
Comment
The judgment in this case is significant not just for the Police Service of Northern Ireland which reportedly now owes £40 million in holiday pay, but also for many other employers which will be facing similar claims. The potential for historical holiday pay claims has increased significantly with the Supreme Court confirming that the three-month gap rule will not necessarily break a series.
The impact on Great Britain is not quite as significant in light of the two-year backstop on unlawful deductions from wages claims, which is not applicable in Northern Ireland. The two-year backstop limits any unlawful deductions claim, even for a series of underpayments, to a period of two years prior to the commencement of the proceedings before the tribunal. We will have to wait and see whether a similar legislative limitation will be implemented in Northern Ireland, in the meantime employers in Northern Ireland are at risk of holiday pay claims going back to 1998.
It is worth noting that holiday pay is an area of focus for the Government with consultations taking place on both reducing red tape on working time and holiday pay calculations for part-year and irregular hours workers. We will keep you updated.
