Tue 28 May 2024

EAT provides holiday pay guidance in light of the Supreme Court decision in Agnew

The Employment Appeal Tribunal have considered the application of the recent Supreme Court judgment that a three-month gap in deductions would not necessarily break a "series of deductions".


Holiday pay claims are often brought as unlawful deduction from wages claims - the deduction being the failure to pay the full amount of holiday pay due. In British Airways PLC v Ms T De Mello and Others   ("De Mello") the claimants, cabin crew for British Airways ("BA"), had a complicated pay structure including multiple different allowances. They believed these allowances should be included as "normal pay" when calculating their holiday pay. As BA had not included the allowances, they made claims to the Employment Tribunal for unlawful deductions from wages.  

The case raised a number of different issues, including whether an allowance should be viewed as a performance payment, and part of normal pay, or an expenses payment, and not part of normal pay. The case also looked at (1) whether BA was entitled to designate the first tranche of holidays taken by staff as statutory holidays and (2) the time limit for bringing a claim where there was a series of deductions. It is the latter point that brings into play the recent Supreme Court Judgement in Chief Constable of the Police Service of Northern Ireland v Agnew ("Agnew").

The Agnew judgment

When the Employment Tribunal heard the De Mello claim it was bound by the decision of the EAT in Bear Scotland v Fulton. That judgment held, that a gap between two successive deductions of more than three months would break a "series of deductions". This was significant to the claimants. Not only did their claim need to be made within the usual three month time limit (subject to Acas conciliation), but where they were trying to claim for backdated underpaid holiday, there could not be a gap of more than three months between each deduction or the older underpayment would be considered out of time and the Employment Tribunal would not have jurisdiction to hear it. Given holidays are often taken at intervals throughout the year this rule potentially prevented claimants recovering backdated holiday pay.

However, the position on gaps of three months changed with the Supreme Court judgment in Agnew. This concluded that it did not matter that the interval between underpayments was from time to time in excess of three months. That did not break or bring to an end the series of deductions. Nor would a series necessarily be broken or brought to an end by any correct or lawful payment.  

EAT's consideration of the Agnew judgment

The EAT concluded that, in light of the Supreme Court judgment in Agnew, the Employment Tribunal finding that a series of deductions could be broken by a three month gap could not stand. It considered the question of whether the deductions made by BA had sufficient similarity to form a series in light of the Agnew judgment. Given that all the payments were of holiday pay and came about because of a failure to factor in one or more allowances that should have counted towards normal pay, the EAT substituted a finding that the deductions made met the sufficient similarly test.  

The question of whether there was sufficient “temporal connection” between the occasions of deduction was remitted by the EAT to a differently constituted Employment Tribunal to decide. However, the EAT did provide some guidance to the approach the Employment Tribunal should take in deciding the issue. The Employment Tribunal should assess the sufficient similarity and temporal tests in the overall context of the relevant factual matrix, recognising that one may have a bearing on the other. In particular "if all of the complaints by a given claimant are of deductions from holiday pay, proper account must be taken, when considering temporality, of the fact that there will inherently be gaps in time between successive holidays".

What does this mean for employers?

This case demonstrates a logical application of the principle set down in Agnew. It puts into practice a concern that employers may have recognised when the Supreme Court handed down its judgment. In unlawful deductions claims relating to holiday pay where there has been a common cause for the deductions, even significant gaps may not break a series of deductions, meaning liabilities for backdated underpaid holiday pay will increase. While every case will turn on its facts, employers in Britain (but not Northern Ireland) can currently take consolation from the fact that the Deduction from Wages (Limitation) Regulations 2014 will limit claims for backdated holiday pay to a maximum of two years.  

It is also worth bearing in mind that while the gap between deductions may no longer break a series of deductions, an unlawful deduction from wages claim still needs to be brought within three months (subject to any extension for Acas conciliation) of the most recent deduction. So the message is clear - if they have not done so already, the most effective way for employers to mitigate any potential liability is to ensure they are paying holiday pay correctly and rectify any errors as soon as possible.

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