The Working Time Regulations (NI) 1998 (superseded by the Working Time Regulations (NI) 2016) introduced the right to paid annual leave in Northern Ireland. In the last 10 to 15 years there has been a plethora of cases before the Courts and Tribunals dealing with the issue of how holiday pay should be calculated. The cases have focussed on holiday pay in respect of the 4 week’s annual leave under the European Working Time Directive (“WTD leave”).
Case law initially established that holiday pay in respect of WTD leave should not be based on basic pay alone but must include all remuneration intrinsically linked to the performance of tasks under the contract of employment. A series of cases in relation to overtime, and the different types of overtime: guaranteed, non-guaranteed and voluntary, then followed to determine what are normal working hours and what holiday pay should therefore be based on. Further cases dealt with issues of commissions and bonuses. In light of these developments claims from employees for backdated holiday pay began to flow into the Tribunal system.
In Bear Scotland Ltd v Fulton, in 2014, the Employment Appeals Tribunal (“EAT”) in GB found that a gap of 3 months or more would automatically break “a series of deductions” for the purposes of holiday pay. This had the potential of placing a significant limitation on claims by employees for backdated holiday pay. The EAT also held that annual leave was taken in the order of WTD leave first, then the additional 1.6 weeks provided under the Working Time Regulations and then any contractual entitlement beyond the statutory entitlement. This finding increased the likelihood of there being a gap of 3 months or more between underpayments of holiday pay and therefore significantly limiting the potential for claims.
In 2019, the Court of Appeal in Northern Ireland considered the issue of holiday pay for police officers in Chief Constable of PSNI v Agnew the Court of Appeal reached a number of important conclusions including:
- That a gap of more than 3 months between a series of unlawful payments of holiday pay or a lawful payment does not necessarily break the series
- There is no requirement for leave to be taken in the order of WTD leave, Working Time Regulations leave and then contractual leave.
Agnew clearly conflicted with Bear Scotland. Agnew was due to be appealed to the Supreme Court but has been postponed to allow mediation between the parties, so uncertainty remained.
This week in Smith v Pimlico Plumbers Limited the Court of Appeal in England dealt with the issue of whether a worker who has taken annual leave, but not received payment because his entitlement was not recognised by the employer, is entitled to make a claim for holiday pay. The Court of Appeal held that the right to paid annual leave is a composite right that accrues up to the termination of employment. An employee would only lose the right to paid annual leave if the employer has encouraged the employee to take leave and advised the employee of the consequences of not taking leave.
Whilst not strictly necessary in the context of Smith, the Court of Appeal gave a strong provisional view that a gap of 3 months does not necessarily break a series of deductions and that Bear Scotland was wrongly decided and Agnew was correct on this point.
Smith may well be appealed to the Supreme Court. The employer had previously won at Tribunal and in the EAT. Smith has already been to the Supreme Court on the issue of whether the Claimant was a worker and therefore entitled to paid annual leave.
In the meantime, pending further case law developments, the uncertainty for employers and employees in dealing with claims for backdated holiday pay remains. This is particularly the case for employers in Northern Ireland, who do not benefit from the 2 year limitation period for backdated holiday pay claims, that applies in Great Britain. A large number of claims lodged in the Northern Ireland Tribunal system await further developments in this area. Many will be hoping that clarity in this area is finally achieved, sooner, rather than later.
Should you require any further information or advice, please contact any member of the Employment Law Unit:-
Tel: 028 9024 5034
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Every care has been taken in the preparation of this bulletin; readers are advised however to seek legal advice in relation to specific issues