Holiday pay: Northern Ireland police case challenges Bear Scotland

Ben Daniel considers the implications of this case for employers in the rest of the UK.

The Court of Appeal in Northern Ireland has contributed to the holiday pay debate, holding that a group of police officers and civilian employees were entitled to have overtime payments (and, in the case of the civilian employees, some allowances) factored into their holiday pay.

Crucially, the Court’s findings in Chief Constable of the Police Service of Northern Ireland v Agnew depart significantly from the reasoning of the Employment Appeal Tribunal in high profile holiday pay case Bear Scotland v Fulton in a number of important ways. Most notably, the Court held that a gap of three months between deductions from holiday pay will not break a ‘series of deductions’ for the purposes of a claim (potentially allowing employees to make claims stretching much further back in time).

What happened?

This claim was brought by approximately 3,700 police staff, falling into two groups. The first group of claimants were police constables or sergeants in the PSNI. The second group of claimants were civilian employees engaged in a variety of roles by the police authority.

The Northern Irish Industrial Tribunal (IT), which is Northern Ireland’s equivalent of the first instance Employment Tribunal, held that that overtime payments (and in the case of the civilian employees, certain allowances) should be included in the calculation of ‘normal pay’ for the purposes of their annual leave entitlement.

The overtime worked by the police officer claimants was ‘non-guaranteed’ (i.e. once notified of the overtime the officer was obliged to work it). The overtime worked by the civilian claimants was both ‘non-guaranteed’ and ‘voluntary’. The IT held that both types should be factored into holiday pay.

The civilian claimants also alleged that a number of allowances should be included namely: on call/standby allowance; premium payments for weekend work; meal overtime allowances; and late night duty allowances. The IT held that all of these should be factored into holiday pay except for the meal allowance which was intended to be a payment in reimbursement of expenses incurred.

The Court of Appeal in Northern Ireland has now upheld this decision and endorsed the decision of the IT to depart from one of the leading cases on this issue, Bear Scotland v Fulton.

The ‘three month rule’

On the question of how far back employees should be allowed to claim, the NI Court of Appeal emphatically chose not to follow the decision of the EAT in Bear Scotland.

It found that the EAT was incorrect to hold that any series of deductions is automatically broken by a gap of three months. The Court reasoned that a gap of three months or more may arise for various reasons including maternity, maternity related illness, disability related illness, a reserve forces call up or simply personal choice (e.g. to save up leave for the birth of a child or other special event). It held that such gaps will not automatically break a series of deductions.

Neither will a series of deductions be automatically broken, the NI Court of Appeal stated, by a ‘compliant’ holiday pay calculation (or a calculation in respect of which there is no Tribunal complaint).

The existence of a series of deductions, and whether the series is broken, must be judged on an individual case by case basis.

This is potentially important because this line of reasoning could make it easier for employees to make holiday pay claims stretching much further back in time. Following Bear Scotland, many potential claimants would have found that their attempts to claim historic holiday pay could be stopped by an argument that there was a three month gap between periods of leave, or (more importantly) between periods of European minimum leave paid at the incorrect rate. Once such a break could be identified, the claimant should have been unable to go back any further. If the reasoning in Chief Constable of the Police Service of Northern Ireland v Agnew is followed, such breaks will not have the same impact and will not stop claims for older underpaid holiday.

However, it is important to note that the Deduction from Wages (Limitation) Regulations 2014, which do not apply in Northern Ireland, impose an additional two year back stop on holiday pay claims (and claims for many other types of deductions from wages) in the rest of the UK.

Which leave comes first?

In Bear Scotland, the Employment Appeal Tribunal’s view was that the four weeks leave available under the European Working Time Directive (commonly twenty days) comes first in any leave year, followed by the additional 1.6 weeks leave (commonly eight days) required in the UK under the Working Time Regulations 1998, lastly followed by any further leave available under the contract of employment or conditions of service. This meant that in most leave years an employee would have more than three months at the end of the leave year during which no European minimum leave was taken. This (when allied with the three month rule) usually broke a series of deductions at the end of each leave year, as strictly speaking the rules requiring normal pay to be factored into holiday pay apply only to the leave required under European law.

In this case, the NI Court of Appeal upheld the IT finding that all of these types of leave are indistinguishable from each other. This makes it much more difficult in practice to establish a three month gap in any series of deductions, as the European leave will not have been clearly exhausted early in the leave year. If followed, it will make it more difficult for employers to argue that any higher rate of holiday pay should have applied only to the first 20 days of leave in each year (making a break in the series of deductions harder to identify and argue).

Does this case impact the rest of the UK?

The direct impacts of this case are confined to Northern Ireland, which is of course a separate legal jurisdiction. Employment Tribunals and Courts in the rest of the UK are not obliged to follow the decisions of the Northern Irish Courts and Tribunals.

However, this Judgment of the Court of Appeal in Northern Ireland will have considerable persuasive value in the Employment Appeal Tribunal in the rest of the UK (although it will not be binding - strictly speaking an Employment Tribunal should follow Bear Scotland and not Agnew). If (or when) Bear Scotland is challenged in the Employment Appeal Tribunal, or (non-Northern Ireland) Court of Appeal, the existence of this appeal level decision in Northern Ireland might be significant.

Many of the arguments against the operation of the ‘three month rule’ in this case are explored in depth and are very persuasive. This decision might increase the likelihood of a challenge to Bear Scotland in the appeal Courts in the rest of the UK.

Where are we with voluntary overtime?

This Northern Ireland Court of Appeal Judgment is another one which imposes a requirement that regularly worked voluntary overtime should be included in holiday pay. This follows the closely watched holiday pay case of East of England Ambulance NHS Trust v Flowers upon which we recently reported. In that case the UK Court of Appeal appeared to confirm that regularly worked voluntary overtime must also be included in holiday pay under the Working Time Directive, albeit that part of the Judgment was not the central rationale of the decision. That case was of particular significance for NHS employers as the main focus of the Judgment was about the contractual obligations which apply to NHS staff (under Agenda for Change). If you wish to retain a distinction between voluntary and compulsory overtime and whether it is factored into holiday pay, please do speak to us.

Ben Daniel is Head of Employment Pensions and Immigration at Weightmans LLP. If you have any questions or concerns, please do not hesitate to contact Ben at ben.daniel@weightmans.com, 0113 213 4054 or speak to your usual Weightmans advisor.

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