
Insight
An Employment Appeal Tribunal (EAT) in Deksne v Ambitions Ltd has awarded a worker two years backdated holiday pay from her employer. The EAT held that a series of underpayments of holiday pay is not broken by a gap of more than three months between underpayments, contrary to a previous EAT decision.
This case widens the potential liability of employers where a worker’s holiday pay has been wrongly calculated in the past. Disputes about whether holiday pay has been underpaid often arise from the complexities of calculating holiday pay for workers with variable hours or pay.
In this article, we will explore the case and what it means for employers in more detail.
The Claimant had been working for Ambitions Ltd since 2017 and claimed that she had been underpaid holiday since 2020.
The Claimant bought a claim in August 2021 for unlawful deduction of wages, which is commonly how claims for underpayment of holiday pay are made. Such claims must be made within three months of the deduction or, where there is a series of deductions, within three months of the most recent deduction.
The employer conceded that it had underpaid her holiday pay. But the Tribunal applied a previous EAT decision in Bear Scotland v Fulton. It was held in Bear that if over three months had passed between the deductions within a series of unpaid holiday pay, the series would be broken and any claim for underpayments prior to the three month gap would be out of time.
In Deksne there was a seven month gap from December 2020 and next period relied upon, being July 2021. The Tribunal therefore rejected the Claimants claim, but the Claimant appealed.
The EAT overturned the decision of the Tribunal and applied the Supreme Court case of Chief Constable of the Police Service of Northern Ireland v Agnew, which came after the Tribunal’s ruling. It was held in Agnew that the chain is not automatically broken in a series of deductions when there has been a gap of more than three months between underpayment of holiday pay.
The EAT stated “Whether deductions of wages constitute a series is essentially a question of fact answered by taking account of all relevant circumstances including the similarities, differences, frequency, size and impact of the deductions, as well as how they came to be made and applied and what linked them together”.
In EAT commented that the original Tribunal had mistakenly taken into account that the intervals between the payments were in excess of three months. As all underpayments for holiday pay were based on the same incorrect calculation, the series was not broken by a gap of more than three months between underpayments.
The ruling in Bear had meant that employers’ liability to workers whose holiday pay had been underpaid for some time could be reduced by virtue of there being a period of over three months where the worker did not take holiday. This ruling was effectively overturned by the Supreme Court in Agnew and now the Deksne case has put this in practice at EAT level.
It is not all bad news for employers. In Deksne, we see the Deduction from Wages (Limitation) Regulations 2014 being put into practice. As per the Regulations, employees can only claim backdated holiday pay going back two years from the date a tribunal claim is made.
Whilst this provides some reassurance for employers, they should still ensure that holiday calculations are correct. This is straightforward for salaried employees paid the same amount each month. Getting holiday pay right is more difficult where pay and / or hours vary from week to week, such as due to paid overtime, irregular hours, shift premiums, allowances and commission.
Any identified unpaid holiday should be analysed to consider the potential liability of the employer, before deciding how best to proceed.
Note that it is still the case that a claim for underpaid holiday must be bought within three months of the latest underpayment.