Holiday pay ruling in Supreme Court brings clarity

The Supreme Court's decision today in Agnew (a Northern Ireland case) finally lays to rest the question of whether a break of more than three months between a series of deductions (in an unlawful deductions from wages claim) breaks the series. It does not automatically do so. The EAT's decision in Bear Scotland, which held otherwise, should no longer be followed in the UK. The Supreme Court has held definitively that there is no sound basis for finding 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 clarity is welcome and yet holiday pay claims will continue to vex employers because:

• The amounts in dispute are often small on an individual basis yet rolled out across the workforce may represent a large sum and a problem of scale.
• A common issue between the parties is what the correct reference period should be for determining what 'normal remuneration' is. Although in this instance the parties agreed that a 12-month reference period was practical, the Supreme Court has 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.
• There is a well-known body of case law (largely derived from the EU) which interprets what is included in 'normal remuneration' expansively. The Supreme Court has reminded us that this too is a question of fact so there is scope for the parties to argue over what is normally received in future cases.

Since the government has committed to reviewing the whole area of holiday pay and how it is calculated, much of what we can deduce from Agnew may change again. As with anything concerning government policy at the moment, a lot will depend on the availability of Parliamentary time and also the timing and outcome of a General Election.