The Supreme Court has given its judgment in the case of Chief Constable of Northern Ireland v Agnew and ors and dismissed the appeal, holding that the workers could claim back for a whole series of unlawful deductions even where there was a gap of more than three months between those deductions.
In this case, the individuals were civilian or police constable workers of the Police Service of Northern Ireland (PSNI or the Employer) who had been paid their holiday pay based on their basic pay. However, case law has established that holiday pay should reflect an employee’s “normal” pay, which should include any regular overtime. As a result, the workers had been underpaid during their annual leave. The Employer accepted that the workers had been underpaid but the issue was how far back the Employer could be held liable for that underpayment. The workers relied on the statutory provision relating to a series of unlawful deductions which would allow them to claim for the whole series provided that the last underpayment in the series was not more than three months before the claim was brought. The Supreme Court was therefore required to consider the meaning of the word “series” and whether a series of payments from which deductions were made ends as a matter of law if two such payments are separated by a gap of more than three months or if a lawful payment is made between them.
In 2019, the Northern Ireland Court of Appeal (NICA) held that the employees had not received the holiday pay that there were entitled to, and that a series of unlawful deductions is not necessarily broken by a gap of three months between the underpayments or by a correct payment. This conflicted with a decision of the Employment Appeal Tribunal (EAT) in Bear Scotland v Fulton which held that, where there is a claim for unlawful deduction of wages under the Employment Rights Act 1996, a series of deductions is broken by a gap of three months or more between the deductions.
The PSNI bought an appeal against the NICA decision in the Supreme Court. The Supreme Court in this case agreed with the NICA and preferred the interpretation that the meaning of “series” in an unlawful deduction is a matter of fact and must be answered in light of all the circumstances. It held that the general purpose of the legislation is to protect workers against exploitation and particularly to protect vulnerable workers for being paid too little for the work which they do. As regards the series, each unlawful payment was linked by the common fault that holiday pay had been calculated by reference to the basic pay only, rather than the employees’ normal pay, and so they did form part of the same series.
The Employer also sought to argue that the police officer respondents in this case were not within the scope of the Employment Rights (Northern Ireland) Order 1996 (the ERO) (which largely corresponds to the Employment Rights Act 1996 in Great Britain (the ERA)) as there was no provision deeming them to be regarded as workers as there was in the Working Time Regulations 1998 (the WTR). As such, they were not able to bring a claim under the more favourable series of unlawful deductions in the ERO. The police officer respondents sought to rely on the EU principle of equivalence that, as a matter of EU law, the national courts must import into the WTR the more favourable limitation period allowed for the unauthorised deductions claim under the ERO. The Supreme Court agreed with the NICA that the inability of the workers to benefit from the series of deductions extension that was available under the ERO infringes the principle of equivalence and should be remedied by incorporating the more favourable limitation period into the WTR.
The Supreme Court also touched on other issues:
- Whether annual leave can be taken in a particular sequence. Annual leave entitlement in the WTR is made up of four weeks leave derived from EU law and an additional 1.6 weeks allowed by domestic law. The Supreme Court agreed with the NICA that there is no requirement as a matter of law for the entitlement under these different sources (to be taken in any particular order.
- The correct mode of calculation. Where it is necessary to determine a worker’s normal remuneration to be paid as holiday pay and there is no settled pattern of payment it is necessary to take an average over a reference period. The Supreme Court agreed with the NICA that, in assessing the daily rate of overtime that forms part of a worker’s normal pay, it is not correct to divide the number of days in the four weeks’ leave period (for a full-time worker that is 20 days by the number of calendar days in the reference period (which is likely to be a 12 month reference period). To use calendar days in the reference period is not comparing like with like. It also agreed that what constitutes normal remuneration as well as what constitutes the reference period for calculating normal pay is a question of fact and should be addressed in evidence in individual cases.
This decision is of significant importance to those workers who were underpaid holiday pay, because they were only paid basic pay or because they were incorrectly determined to be self-employed and not workers, and who have underpayments going back for a number of years. On the facts of this case, the Employer’s calculated that meeting these claims in full would cost about £30 million whereas, if the claims were limited to underpayments within three months of the proceedings being brought, the cost would be about £300,000. In Great Britain, the position is slightly different because the Deductions from Wages (Limitation) Regulations 2014 were introduced which implemented a “two-year backstop”. This limits any claim, even for a series of underpayments, to a period two years prior to the commencement of the proceedings before the tribunal. Employers should be taking steps to limit their liability by ending the series of deductions. This means ensuring that holiday pay is paid correctly and continues to be paid correctly. Workers then have three months from the last salary payment when the unlawful deduction was made to bring their claim.