Important Ruling: Holiday Pay.

The law relating to employee holidays in England and Wales is complex – but it has just become a little simpler, in favour of employees.

Paid holiday entitlement

The starting point when determining an employee’s entitlement to holidays and holiday pay is the contract of employment – but whatever the contract states, this cannot be less generous than the statutory minimum entitlement.

(For agricultural workers in Wales, and also those in England who commenced employment before 1 October 2013 and whose holiday entitlement is still in accordance with the agricultural wages regime, the applicable Agricultural Wages Order will also have a bearing on minimum holiday entitlement, but that falls outside the scope of this article.)

The statutory minimum holiday entitlement under the Working Time Regulations 1998 is 5.6 weeks (28 days for a full-time worker), and there are different rules for calculating holiday pay for different parts of that entitlement.

In the case of four weeks of holiday in each holiday year (the minimum holiday entitlement stemming from European law – 20 days for a full-time worker), holiday pay cannot be calculated based on basic pay alone, but must be based on normal remuneration, including commission, overtime pay (as long as it is sufficiently regular) and other allowances earned during the last 52 weeks during which at any time the employee worked.

In the case of 1.6 weeks of holiday, holiday pay entitlement is determined in accordance with the Employment Rights Act 1996 as follows:

• Generally, for a worker who has normal working hours, holiday pay will be the normal basic pay, disregarding any overtime hours (except guaranteed, compulsory overtime) and without any additional bonuses, commission payments, overtime premiums or allowances.
• For workers with normal working hours whose pay varies by reference to the days on which the work is done, the times of day at which it is done or the amount of work done, holiday pay is calculated using an average of all the worker's remuneration for working hours over the last 12 weeks before the week in which the holiday began during which at any time the employee worked, excluding overtime premia.
• Holiday pay is calculated for workers who have no normal working hours using an average of all the worker's remuneration for working hours over the last 12 weeks before the holiday began during which at any time the employee worked.

Holiday pay claims

Workers can claim for underpaid holiday pay going back as far as two years from the date of a claim as unlawful deductions from wages in the Employment Tribunals.

Employees are required to commence Acas early conciliation within three months of the last in a "series of deductions", and then (in the absence of a settlement) commence proceedings within the applicable time limit (which will not be less than one month after the end of the early conciliation process).

(Workers also have up to six years to claim holiday pay owing under their contracts of employment in the courts, but most holiday pay claims relate to statutory minimum entitlements, which can only be brought in the Employment Tribunals.)

In 2014 in a case called Bear Scotland Ltd v Fulton, the Employment Appeal Tribunal decided that there would be a break in the chain of any "series of deductions" where a period of more than three months has elapsed between the deductions.

This, of course, limited the scope for workers to make substantial retrospective claims for underpaid holiday: an employee might have been paid less than their statutory entitlement for every holiday taken over a two year period, but if over that time there was a gap of more than three months between holidays (or, to be specific, the pay dates relating to holidays), that would break the series of deductions, and a claim could not extend back beyond that break.

In 2019, the Northern Ireland Court of Appeal reached a different view on this point in a case called Chief Constable of the Police Service of Northern Ireland v Agnew: it did not consider that whether there was a three-month gap between deductions was relevant to the consideration as to whether they were part of the same series. That decision was only binding in Northern Ireland, however.

What has changed?

The decision in Agnew has now been upheld in the Supreme Court, and that decision is binding throughout the UK.

The Supreme Court has decided that whether a claim in respect of two or more deductions is in respect of a series of deductions is a question of fact, and in answering that question all relevant circumstances must be taken into account, including their similarities and differences; their frequency, size and impact; how they came to be made and applied; what links them together; and any other relevant circumstances – but whether the deductions were more than three months apart is no longer relevant.

For advice relating to holiday pay, or any other employment-related legal issues, please contact our Employment Law Team.