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Background: When calculating the holiday pay of workers with variable pay, the ERA requires employers to use a system of averaging over a specific reference period. Since 6 April 2020, this reference period is the previous 52 working weeks; ignoring any weeks when the worker didn’t work and substituting for earlier weeks.
If holiday payments are calculated incorrectly, workers may succeed in a claim for unlawful deductions from wages in respect of underpayment of holiday pay. To bring such claim the worker has to do so within three months of the last wage payment with an unlawful deduction. If they succeed in showing that there was an unlawful deduction, they can then go on to claim for any further unlawful deductions before this, if they form part of a ‘series’.
The Supreme Court said in its 2023 decision Chief Constable of Northern Ireland Police v Agnew that what amounts to a series of deductions is a question of fact. It said ‘all relevant circumstances must be taken into account, including, in relation to the deductions in issue: their similarities and differences; their frequency, size and impact; how they came to be made and applied; what links them together, and all other relevant circumstances’.
The Supreme Court also made clear that a series of deductions will not automatically be broken just because there is a gap of more than three months between payments or a correct payment between two incorrect payments (overturning the EAT’s decision in Bear Scotland Ltd v Fulton).
That said, how far workers can go back in time to find unlawful deductions, is limited by the Deductions from Wages (Limitation) Regulations 2014 which restricts claims for unlawful deductions to two years before the last deduction.
Facts: The employee, Ms Deksne, was engaged by her employer (a temporary employment agency) on a part-time basis. The employer failed to calculate Ms Deksne’s holiday pay correctly, as it included weeks within the reference period when she did not work. This reduced the average pay (and therefore holiday pay) she received.
The employee brought a claim for unlawful deduction from wages.
Tribunal decision
The Tribunal said that, although the employer had miscalculated Ms Deksne’s holiday pay, she could not claim all underpayments. Some of the payments (before January 2021) were not part of a series of deductions and she had not brought her claim in time for these. This was because there was a gap of more than three months between the relevant deductions (as the employer had broken the chain by already correcting an underpayment of holiday pay for July 2021).
Ms Deksne appealed.
EAT decision
The EAT upheld Ms Deksne’s appeal. The EAT noted that the Tribunal’s decision pre-dated Agnew and that, following the Supreme Court’s decision in this case, it was clear that whether deductions of wages constitute a series is essentially a question of fact based on all relevant circumstances. A gap of more than three months, or the existence of a correct payment, did not necessarily break the series.
The EAT found that in this case the series of underpayments had not been broken, despite the employer’s correct payment and lengthy intervals between underpayments (including one of seven months). In the EAT’s view, all the underpayments of holiday pay were based on the same erroneous calculation and, as such, were linked and could form part of a series.
Ms Deksne was therefore entitled to claim all underpayments of holiday pay back to the beginning of the two-year backstop.
Implications: This case highlights how the Supreme Court’s decision in Agnew has made it easier for workers to claim historic underpayments of holiday pay. A three-month gap between underpayments can no longer be relied on by employers to argue that a series of deductions has been broken. Instead, Tribunals must consider the broader context and factual links between deductions.
This makes it all the more important that employers review their holiday pay calculations to ensure compliance. Also to address any (historical) errors promptly – as claims may now span up to two years if linked as part of a series. (Or potentially longer if the employer is based in Northern Ireland (or is the employer of public sector workers) in which case the series could date as far back as the beginning of a worker’s employment or 1998 – when the Working Time Regulations came into force).
That said, it is still the case that to bring an unlawful deduction from wages claim, the worker must do so within three months of the last deduction.
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