Series of deductions

The Court of Appeal of Northern Ireland has held in Chief Constable of the Police Service of Northern Ireland and anor v Agnew and ors, that contrary to the decision in Bear Scotland v Fulton a series of deductions regarding holiday pay is not broken by a gap of three months or more where there is a "sufficient similarity of subject matter, such that each event is factually linked with the next...in the alleged series [of deductions]...”. 

Basic facts

Thousands of police officers and civilians employed by the Police Service of Northern Ireland (PSNI) lodged claims for unlawful deductions from pay on the basis that their holiday pay had been calculated by reference to their basic salary instead of “normal pay” since 1998. Instead, it should have included elements such as overtime and allowances.

Although the PSNI accepted that it had calculated holiday pay on the wrong basis, it argued that payment gaps of more than three months extinguished the jurisdiction of the tribunal to hear such claims. As such, it relied on the decision in Bear Scotland (weekly LELR 531) in which the EAT held that, for the purposes of a series of deductions claims, a previous underpayment which occurred more than three months before the next in the alleged series could not form part of the series. The effect of Bear Scotland is that employees’ claims for holiday pay may face time limit difficulties and/or limit the amount of compensation recoverable.

Tribunal decision

However, the tribunal disagreed holding that the decision in Bear Scotland was wrong in terms of its finding that a gap of three months or more would break the chain.

The PSNI appealed, arguing that a series is also broken by a lawful payment. So for instance if a claimant was not due any overtime or allowances and therefore only received their basic pay during the period used for calculating holiday pay, then the amount of holiday pay would lawfully have been their basic salary. This would therefore break the series in the chain of deductions.

Decision of Northern Ireland Court of Appeal

The Court of Appeal disagreed, however, holding that, in order to establish a series of deductions, claimants do not have to show that every payment was subject to an unlawful deduction. Instead there just has to be ‘a sufficient similarity of subject matter, such that each event is factually linked with the next (in the alleged series) in the same way as it is linked with its predecessor’ to constitute a series.

The Court of Appeal confirmed that such a series of deductions will not be ended, as a matter of law, by a gap of more than three months between unlawful deductions nor by a lawful payment. So for instance, in these claims, there was an alleged series of unlawful deductions in relation to holiday pay with subsequent payments made within the series which were not subject to unlawful deductions but the Court of Appeal held such payments did not interrupt the series.

It also held, contrary to the decision in Bear Scotland, that workers do not have to take the three types of leave to which they are entitled (in this case 20 days under the European directive, eight days under the Working Time Regulations and two days under their service provisions) in any particular order. 

The PSNI had argued, in line with Bear Scotland, that when annual leave was taken by police officers and civilian employees, they should use up their minimum entitlement under the directive first. As “normal pay” only has to be paid in relation to entitlement under the European directive, this would produce an increased chance of a gap of three months or more between underpayments of holiday pay and a breach of a series.

In terms of the method of calculation of the amount of overtime etc. to be taken into account in calculating holiday pay, the Court of Appeal said that this is a question of fact in each case but that the focus is for normal pay to be maintained over the holiday period. The Court of Appeal considered that what might be the correct divisor to apply to overtime payments etc. in Agnew and held that it would be wrong, in principle, to apply a divisor that included both working and non-working days.

The Court of Appeal then issued some non-binding guidance on this issue suggesting that using a divisor of the total working days in  a year might be one way forward (in that case 260 days) i.e. in a reference period of 12 months, applying a fraction of 20 days (leave entitlement)/260 (working days) to the overtime payments etc. paid over this period might be lawful, but everything would depend on the facts of each case.

As for the correct reference period to adopt for calculating holiday pay (usually 12 weeks), the Court of Appeal held that it was a question of fact in each case. It therefore suggested that the parties agree a “pragmatic, administration-friendly method for calculating and paying "normal pay" based on averages taken over a rolling 12-month period immediately preceding the period of leave.”