A series of small things… Supreme Court rules in Chief Constable of the Police Service of Northern Ireland v Agnew

Earlier this week, the Supreme Court handed down its judgment in the holiday pay case of Chief Constable of the Police Service of Northern Ireland (and another) v Agnew and others [2023] UKSC 33 dismissing the appeal brought by the respondent police force. The Supreme Court found that the claimant police officers and civilian employees had suffered a series of unlawful deductions in respect of their holiday pay, because it had been calculated by reference to basic pay rather than normal pay, since 23 November 1998 when the working time legislation was introduced. This was despite the fact that the interval between payments in respect of holiday was sometimes more than the applicable time limit of three months for bringing a claim and that the series of deductions was interrupted by correct payments. The decision results in a financial liability for the police force reported to be around £30M.

Appeal

Over 3,380 police officers and 364 civilian employees brought claims for unlawful deductions and underpayment of holiday under the relevant Northern Irish legislation. Their claims were based on the principle that holiday pay must be calculated based on normal pay, not basic pay, and so must include an element in respect of overtime, commission and certain other allowance payments. That principle was established in cases such as Williams v British Airways plc and Bear Scotland v Fulton. The claimants had all worked paid overtime but their holiday pay had been calculated by reference to their basic pay only.

The key issue on appeal from the Northern Ireland Court of Appeal (NICA) was how far back the claimant police officers and civilian employees were entitled to go with their claim to recover underpaid holiday. The claimants sought to recover underpayments going back to 1998, arguing that they formed part of a “series of payments” for the purposes of the relevant legislation in Northern Ireland, specifically the Working Time Regulations (Northern Ireland) and the Employment Rights (Northern Ireland) Order 1996 (ERO), and so their claim for underpayments extending over a period of many years could be brought within three months of the last of those underpayments. The ERO contains “series of payments” provisions that are an exception to the normal rule that a claim must be brought within three months of an underpayment. The Employment Rights Act 1996 contains equivalent provisions.

Decision

The Supreme Court agreed with the NICA’s decision that the underpayments formed part of a series of payments.

The Supreme Court held that, while a “series” has no legal definition, it requires a sufficient similarity of subject matter such that each deduction is factually linked to the next in the same way and with a sufficient degree of repetition.

Whether a claim in respect of two or more deductions constitutes a claim in respect of a series of deductions is essentially a question of fact. All relevant circumstances must be taken into account in answering that question, including the similarities and differences, and frequency, size and impact of the deductions, how they came to be made and applied and what links them together. Non-sequential deductions, or deductions that are interrupted by a lawful payment, do not necessarily break the series. Whether a series is broken depends on the nature and reason for the deductions.

Here, the Supreme Court considered that the underpayments were relevantly connected and the fact that they were sometimes separated by a gap of more than three months did not break the series. Also, even though the underpayments were sometimes interrupted by lawful payments, that did not break the series either because the holiday pay was still incorrectly calculated by reference to basic pay, rather than normal pay, and it just happened that those payments coincided with periods when the claimants had not worked overtime. 

The Supreme Court also upheld the Court of Appeal’s conclusion that holiday does not need to be taken in a particular order. The respondents argued that the 20 days’ leave provided under the European Working Time Directive (in respect of which holiday pay must be based on normal pay) should be treated as having been taken first, before the additional 8 days’ leave provided under the Working Time Regulations (which the respondents argued only attracted holiday pay based on basic pay). They argued that the effect of this would be to break a series of deductions because holiday payments made in respect of the additional 8 days’ leave and based on basic pay only would not amount to an underpayment, and there would typically be a period of more than three months between the end of the first 20 days’ leave and the start of the additional 8 days’ leave. The Supreme Court held that that interpretation (although less important in the light of its decision on the “series” issue) would be contrary to the purpose of holiday which is to protect workers’ health and safety.

The Supreme Court also upheld the Court of Appeal’s decision that what amounts to normal pay and the relevant reference period for calculating normal pay are questions of fact although it noted that a 12-month reference period would be a pragmatic approach. The Supreme Court confirmed that it would be wrong to use the divisor 365 in relation to 20 working days because that did not compare like with like.

Comment

While the Supreme Court’s decision is legally significant, it is unsurprising insofar as it is consistent with the earlier decision of the NICA in the proceedings and the overall direction of travel in respect of holiday pay. Its financial implications for employers operating in Great Britain at least are mitigated by the two-year backstop enacted by the Deduction from Wages (Limitation) Regulations 2014 that limit any claim even for a series of underpayments to a period of two years prior to the commencement of tribunal proceedings.

The Supreme Court’s decision that holiday provided under the European Working Time Directive and the Working Time Regulations should not be distinguished and are part of the same “composite pot” is potentially more interesting. This is especially so for employers who opted to pay normal pay in respect of the first 20 days’ entitlement, and basic pay in respect of the additional 8 days’ entitlement in response to the developing case law in this area. Based on the Supreme Court’s decision, that approach is potentially unlawful and does not avoid those payments forming part of a series for the purposes of a claim. The decision follows the government’s recent Smarter regulation to grow the economy policy paper in which, among other things, it set out its intention to amalgamate the basic and additional annual leave entitlements to ease the administrative burden on employers of having two different types of leave attracting two different rates of pay. For more information, see our Law-Now Government announces multiple post-Brexit employment law reforms. 

If you have any questions about the Supreme Court’s decision, or your company’s approach to calculating holiday pay please get in touch with your usual CMS contact.