Holiday Pay - recent legal decisions

16 July 2019

With the holiday season now upon us, it is timely to consider two recent decisions in the seemingly endless stream of holiday pay cases that we have witnessed in recent years.

Must holiday pay include regular voluntary overtime?

The Court of Appeal considered this question in Flowers v East of England Ambulance Trust and decided that regular voluntary overtime should be included in holiday pay if it is sufficiently regular and it amounts to ‘normal remuneration’. As you will be aware Bear Scotland v Fulton and others previously held that overtime that is compulsory for the employee must be included in the calculation of holiday pay. 

In this case, several Claimants who worked for East of England Ambulance Trust worked voluntary overtime, whereby they were free to choose whether or not to work overtime. They subsequently brought holiday pay claims on the grounds that this overtime should be categorised as their normal remuneration and therefore, should be included in their holiday pay.

The Court of Appeal agreed with the Claimants arguments and stated that voluntary overtime should be counted if it is sufficiently regular and settled such that payments made for voluntary overtime amount to normal remuneration. It decided that there is no separate requirement that the hours of work are compulsory under the contract.

Previous case law has held that for a payment to count as "normal", it must have been paid over a sufficient period of time on a regular or recurring basis. This is a question of fact and degree for the tribunal. As such, when determining whether a worker’s voluntary overtime satisfies the threshold for regularity you will need to either review this on a case by case basis or simply include all overtime payments when calculating average earnings for the purpose of determining holiday pay.

Does a 3 month gap provide any protection against an underpayment claim?

In the case of Chief Constable of The Police Service of Northern Ireland & Anor v Agnew [2019], the Court of Appeal in Northern Ireland (“NICA”) held that a gap of three months following an underpayment of wages (which would include for example underpaid holiday pay) does not break a series of deductions in an unlawful deductions of wages claim. So what does that actually mean for you in practice?

Well, prior to this decision, the Employment Appeal Tribunal had established in Bear Scotland Limited v Fulton that where three months had passed between deductions (e.g. a failure to pay the right amount of holiday pay) this breaks the series of deductions in the claim.  The practical impact of this is that: (a) anything occurring prior to the three month break could not then be included in an unlawful deduction of wages claim brought after that 3 month period; and (b) this offered comfort to employers who were concerned about holiday pay claims being brought that would date back over many months or years.

However, in the case of Agnew, the NICA disagreed with the approach in Bear Scotland and said it could lead to arbitrary and unfair results. The NICA held that whether there has been a series of deductions is a question of fact and a series is not ended as a matter of law by a gap of three months between unlawful deductions nor is it ended by a lawful payment.

At this stage, it is important to note that the case of Agnew is a Northern Ireland case and it is not binding on the tribunals in Great Britain.  Instead, the Tribunals here will be required to follow Bear Scotland Limited.  So what is all of the fuss about then? Well, claimants could use this case as persuasive authority to challenge the authority in Bear Scotland and try to persuade the English courts to follow the Agnew approach. If successful, this would reduce the current protection for employers by enhancing the potential for longer periods of back pay to be claimed.

In addition, this decision (Agnew) is of interest to employers in Great Britain because the wording of the legislation for both jurisdictions are identical. Consequently, this is another reason why the same arguments advanced in this case of Agnew could be applied to cases here in Great Britain.  

For employers, these cases act as reminders to review holiday pay practices and ensure that they are being operated in line with the appropriate employment law requirements.  In addition, employers should remain alert to further decisions that may occur in the courts of Great Britain on this issue. Watch this space!

This Blog is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon as legal advice.