The Supreme Court's decision in Agnew (a Northern Ireland case) considered the question of whether a break of more than three months between a series of deductions (in an unlawful deductions from wages claim) breaks that series. The Court held that it does not automatically do so, which is contrary to the EAT's decision in Bear Scotland. Unlike the Northern Irish decision of Agnew, which was not binding in in the UK, the Supreme Court's decision is binding in the UK. Therefore, the approach in Bear Scotland should no longer be followed.
To the extent that employers have sought to defend unlawful deductions claims based on an argument that the series is broken by a gap of more than 3 months, or a correct payment within that timescale, they should no longer do so.
The Supreme Court found that there was no sound basis for the approach taken in Bear Scotland, essentially that the three-month time limit for bringing a claim for unlawful deductions gives rise to or should be conflated with a rule that a gap of more than three months breaks a series. This outcome is unlikely to come as a surprise to many lawyers and their clients. After all, the Court of Appeal recently indicated in pretty strong terms in the Pimlico Plumbers case (which concerned how a plumber wrongly characterised as self-employed could claim holiday pay retrospectively) that Bear Scotland was in its view wrong.
The Supreme Court went on to point out that what forms part of a series is a question of fact; there needs to be a 'unifying vice'. An obvious example of this might be, for example, where a worker gets paid for holiday, commission or overtime is not included in the calculation when it should be. Such an omission would be a 'unifying vice'. However, the deductions need not be contiguous, which is just another way of saying that a gap or correct payment will not necessarily break a series.
The ramifications of this decision are obviously most significant in Northern Ireland. The reasons for this are twofold: first, the Bear Scotland approach has never been adopted in Northern Ireland; secondly, the UK government created a backstop period of 2 years for unlawful deductions claims brought after July 2015 in the Unlawful Deductions from Wages (Limitation) Regulations 2014. Ireland does not have an equivalent regulation in place.
The Supreme Court gave some other important guidance in Agnew, in particular on the issue of what a correct reference period is for normal remuneration. Although in this instance the parties agreed that a 12-month reference period was practical, the Supreme Court indicated that this will not necessarily be so for all cases. In April 2020, legislation was introduced to provide for a 52-week reference period when calculating holiday pay for atypical workers. However, it is by no means clear that the same reference period should be used for those with normal working hours, even though some tribunals have adopted this approach.
The Supreme Court also gave a reminder that what constitutes normal remuneration is a question of fact. Although EU case law has made clear that this concept should be construed expansively, determining that which is 'normally received' is a question of fact.
Finally, the Court indicated that holiday pay should be viewed as a composite pot. In its judgment, the Court conveyed a sense that frankly, most employees do not have time or inclination to grapple with the niceties of how to categorise leave and/or how it is paid out on termination. Because there are three possible types of leave – 4 weeks derived from the Working Time Directive, an additional 1.6 weeks provided under UK law, and sometimes further contractual leave provided by employers, different rules on rate of pay and carry over may apply between the three different types of leave.
Bear Scotland attempted to solve part of this conundrum by expressing the view that WTD leave should be regarded as taken first. Agnew rejects this approach, indicating that if it is not practicable to distinguish between the different types of leave, they should be regarded as part of a single pot. Where employers have a clause in the contract which makes the distinction clear, it could be argued that a distinction is sustainable, so the composite approach is not required.
Since reforms to holiday pay will take place in January 2024, some of what we can deduce from Agnew will change again. Notably, the Government will not adopt the 'one composite pot' approach; details of proposed holiday pay changes will be reported in future.
