Chief Constable of Police Service of Northern Ireland v Agnew - What Does this Mean for you?Posted in : Supplementary Articles NI on 15 November 2023
On 4th October 2023 the long-awaited decision in the Supreme Court case of Chief Constable of Police Service of Northern Ireland v Agnew was finally published. The Supreme Court unanimously dismissed the appeal of the PSNI and affirmed the earlier Court of Appeal’s decision - this will have huge implications for employers in Northern Ireland with some facing extreme costs and headaches from the backlog of holiday calculations. So how did we get here? What does it mean for you?
And, most importantly, what steps can you take now to safeguard your organisation?
Michelle McGinley, Director of Legal & Policy and Kathryn O’Lone, Senior Employment Lawyer and Head of ROI Services and Business Improvement from the Employers Federation explain:
1. An overview of the law to date;
2. What the Supreme Court decision actually says (and means!) and
3. Lessons learned and practical next steps.
Cut through the noise and get clarity by catching up below! And don't miss Michelle and Kathryn's answers to questions asked HERE.
Answers to Questions Asked During the Webinar: Legal Island Q&A Document.pdf
Christine: Good morning, everyone, and welcome to our webinar sponsored by MCS Group. My name is Christine Quinn. I am a Knowledge Partner here at Legal-Island. For anyone who's new to Legal-Island events, I'm a qualified employment solicitor, not practising at the moment. I'm enjoying my work here at Legal-Island too much. Most of my practice and career was spent in London, but I've also practised here in Belfast.
I'm joined today by Michelle McGinley and Kathryn O'Lone of the Employers Federation. You're very welcome, Michelle and Kathryn.
Michelle: Thank you.
Christine: So, for those of you who don't know the Employers Federation, they're a team of qualified lawyers who exclusively advise businesses and organisations in NI, GB, and ROI on all employment-related matters. They also provide legal representation for their member organisations in the Industrial and Fair Employment Tribunals, and the Workplace Relations Commission. So, this session is exclusively geared to you, the employer.
Michelle and Kathryn tell me that their pet hate is hearing introductions that simply roll off job titles. So, with that in mind, Michelle has decided to write Kathryn's intro, and Kathryn has done the same for Michelle.
So, what does Kathryn say about Michelle? She says, "Michelle's passion for employment law is infectious. She genuinely thrives when reading a complex judgement and breaking it down in a digestible way. She goes above and beyond for members, ensuring her advice is not only legally sound, but also creative and pragmatic. She makes all of us in Employers Federation better lawyers for having her in our team".
So, it's Michelle's turn to describe Kathryn. She says of Kathryn, "Kathryn is a razor-sharp lawyer who's like a dog with a bone when it comes to detail. If you've been in tribunal with her, you will want her on your side. On a side note, had she not been a lawyer, a mathematician was also an option as she just gets numbers". So, that's going to be very handy when we're talking about holiday pay calculations a bit later on.
So, I just want to take a quick moment to say thanks as always to our sponsors, MCS Group. MCS help people find careers that match their skill sets perfectly, as well as supporting employers to build high-performing businesses by connecting them with the most talented candidates in the market. If you're interested in finding out how MCS can help you, head to www.mcsgroup.jobs.
So, onwards, what are we talking about today? On 4 October 2023, that's just a few weeks ago, the long-awaited decision in the Supreme Court case of the Chief Constable of the PSNI v Agnew was finally published. So, the Supreme Court unanimously dismissed the appeal of the PSNI and affirmed the earlier Court of Appeals decision. This will have huge impact on employers in Northern Ireland, with some facing extreme costs and headaches from the backlog of holiday pay calculations.
So, how did we get here? What does it mean for you? And most importantly, what steps can you take now to see safeguard your organisation?
Has anyone read the decision yet? I have. It's in the hand-out section of the webinar. It's in surprisingly plain English, and it's a great explanation of all the case law that has flowed from the Working Time Directive, so around 1996, '98, when that was all being debated and implemented.
It's a really good read if you like that kind of thing. And luckily, Michelle and Kathryn do like that kind of thing and are here today. So, thank you for joining us, Michelle and Kathryn. I am going to leave you to it.
If we have time at the end, I'm going to come back on and put some questions to Michelle and Kathryn. So, please do drop in the questions to the question box as we go, and I'll try and get to those at the end. But in the meantime, I'll leave you guys to it.
Michelle: Thank you, Christine, and good morning, everyone. I'm delighted to be joined by so many here this morning to talk about the Supreme Court case. I agree with Christine. It's actually what I would call quite an eloquently written decision, very much in plain English. And if you do want to walk through the history of holiday pay and how we've got to Agnew, do go off and read it.
If you don't, don't worry. What I'm going to do this morning is really follow the style of the decision and walk you through, using the headings and the structure that the Supreme Court did in the decision, to get you to understand what this case is all about.
Now, many of you will be familiar with the facts of this case. It started in Northern Ireland back in 2015, 2016 when the cases were lodged. It then went to the Industrial Tribunal, and the then-Vice President, now President, Mr Noel Kelly heard the case over four days, which is quite a short hearing for the issues that were in the case, towards the end of September, start of October in 2018.
He wrote his decision in his own words, as he said, over a wet weekend. It's a big bumper of a 64-page decision. And in the main, he upheld the police officers' and the civilians' claims.
It was and he fully anticipated that the case would be appealed, and he fully appreciated as well the huge impact in terms of finance that the decision was having. I think I've heard estimates that the cost to the PSNI alone is about £30 to £40 million, and the cost to the public purse across the whole public sector, way in excess of that. I think Stephen Nolan was quoting figures of £120 to £150 million. So, it has huge financial implications as well.
And because of that, when the then-Vice President, Mr Kelly, handed down his decision, he fully anticipated it would be appealed. And it was appealed firstly to the Northern Ireland Court of Appeal where the Industrial Tribunal cases are appealed to.
That was heard by our Northern Ireland Court of Appeal in June 2019. They upheld in the main the tribunal's decision, all but in one respect, and we'll come on and look at that this morning.
And then it was appealed to the Supreme Court. Many of you might remember that it was originally listed in the Supreme Court in June 2021, but it was taken out of the list on application of both parties to allow settlement discussions to take place.
Those settlement discussions were not successful, and therefore it returned to the Supreme Court and was heard over two days in December 2022, so in December past. And the decision, as Christine has said, was issued on 4 October.
The facts are probably known by most of you, but I think it's important to remember what this case is not about is whether overtime should be paid in calculating holiday pay. In fact, that was a point that was accepted by both parties throughout the whole history of the case, that overtime should have been included in the calculation and wasn't.
And in fact, there was an underpayment of holiday pay to approximately 3,700 to about 4,000 police officers and civilian staff.
So, the issue of whether overtime should come into the calculation or not was not in dispute between the parties in this case.
What the case was about was about the remedy. How do we calculate the holiday pay? And there were two main points that the Supreme Court were looking at, and these were there in all stages of the hearing. It's two issues. How far can claims go back? How far can we allow these claims to go back? And the second issue is how pay should be calculated.
And in understanding the answers to those questions, some of the component parts of those questions were . . . The big issue, I suppose, was what constitutes a series of deductions? And throughout the course of this morning, what we'll look at is what does that mean and why was that relevant?
Then the second question, again, is, "Is leave taken in any particular order or is it a composite whole approach?" And again, we'll look at why that was a relevant question and how we got that question in.
Two other sort of side issues, then, were what is the appropriate divisor when calculating holiday pay, and what is the appropriate reference period?
And those are the four questions that I'm going to walk through this morning and give you the Supreme Court's answers insofar as they're available. Then I'll pass you over to Kathryn in the second session who's going to look at it in more of a practical perspective and think about what we don't know and what answers we don't know.
So, if we move on, one of the first steps that the Supreme Court does when it was issuing its decision, the first question it asked itself was, "Where does the entitlement to annual leave come from?" It recognised that it comes from various sources, and it's important to keep these component parts of annual leave separate because different legal rules apply, for example, in the calculation of pay and indeed in the ability to carry over as well.
And the three different types of leaves that the Supreme Court recognised were the four weeks' leave derived from the European Working Time Directive. And that's mandatory. That must have been implemented by 1998 by Britain.
There are then, and this is how it's referred to in the Working Time Regulations, an additional 1.6 weeks. So, when they were bringing into effect the four weeks, the government at that time decided to go further and issue an additional 1.6 weeks on top of the European leave, the four weeks derived from the European rights. That's referred to as your additional 1.6 weeks Working Time Regulations.
And then the third aspect of leave that you may have and see in your contracts of employment is the enhanced contractual leave above that. So, for example, if your contracts provide for 33 days' leave, 20 days will be your Working Time Directive leave, 8 days will be your additional leave derived from the domestic legislation, and then those extra 5 days then will be your contractual leave.
So, we move on then and look at the next question that the Supreme Court looked at, said, "Well, that's the entitlement to leave. Where does the right to pay derive from? It's evident in the Working Time Regulations that this leave must be paid, but where does it say what that amount should be?"
And the first point it noted was in the Working Time Directive itself in 1993, the original directive, it was silent on how pay should be calculated. When the GB government introduced the Working Time Regulations, what they decided is that week's pay would be calculated in accordance with the provisions set out in the Employment Rights Order.
And for those of you familiar with the Employment Rights Order, there's a devilishly difficult section called Protection From Wages, and under that they have a week's pay.
In there, in the Employment Rights Order, it, for the purposes of this morning, divides people into workers with normal working hours and workers with no normal working hours. And it calculates that those with normal working hours are entitled to what's payable under their contract of employment for their hours worked.
Those with no normal working hours are entitled to an average pay in a 12-week reference period, and that's the word reference period starting to come in, prior to the holiday taken. So, that's the rolling 12-week period, or as some people choose to call it, the look-back period. You look back at that previous 12 weeks before the holiday is taken, those with no normal working hours, and you calculate an average of their holiday and they're entitled to that pay.
So, that then was where the entitlement to pay came from. The next question then was, "Well, what does these normal working hours mean?" There was a whole legacy of cases on the calculation of holiday pay, and for a long time it was decided that normal pay under the Employment Rights Order and the normal pay that you were entitled to for your holiday pay was in, in fact, your basic pay and that it was no more than your basic pay under your contract of employment.
And that was a pretty settled position for a long time, partly because there was a case called Bamsey v Albon Engineering. I'm sure I got that title wrong. Albon Engineering Manufacturing. That was a 2004 Court of Appeal case, which more or less said all you're entitled to in your annual leave is your basic pay. You're not entitled to anything more.
They then followed a number of cases, as I said, that led to two cases reaching . . . one in the Supreme Court and reference has been made to the European Court of Justice.
Now, I should pause there and remind you that what I'm talking about today in the calculation of holiday pay is in relation to the 20 working days only. It doesn't apply to the additional leave and it doesn't apply to the contractual leave. So, when I talk about the case law as we go forward, this is only in relation to the 20 working days.
In respect of those 20 working days, there were a number of cases that were referred to, as I said, to the Supreme Court.
The first one is Williams and others v British Airways. And in that case, this was British Airways staff who, when they were on holiday, were paid their basic pay without the allowances that they received when they were working.
So, that case wasn't about overtime. It was about the additional allowances that they were paid when they were on flights. I think the names were an in-flight allowance and a time away from home allowance. They were saying that, "When we're on holidays, we should receive an amount equivalent to those allowances".
It reached the Supreme Court, and the Supreme Court referred a number of questions to the European Court of Justice. And the European Court of Justice came back and said, "Workers on holiday are entitled to remuneration that puts them in a comparable position to pay when working, and that any pay . . ." And these are important words because they're repeated again in the judgement later in the Supreme Court. "Any pay intrinsically linked to the performance of tasks which the worker is required to carry out under the contract of employment is also included".
So, these payments, they said, are intrinsically linked to the performance of the work and should be paid when they are taking holiday.
Now, what BA had been argued was, "Well, the whole Working Time Regulations is a health and safety measure", and the claimants in that case have been argued that this is a deterrent for most taking holiday. And BA produced statistics to say, "Look, all our staff take holiday". Probably because they have free flights. "They take their holiday, so there is no actual deterrent here by paying it at a lesser amount".
And what the Supreme Court and the Court of Justice said is, "It doesn't matter. Even a theoretical deterrent is enough and that you must pay normal pay when workers are on holidays".
The next case then that was referred also to the European Court of Justice is that of Lock v British Gas. Mr Lock was a sales engineer who worked for British Gas. And when he was on holiday, he obviously wasn't selling and wasn't earning commission, and he brought a case on that point.
The case, again, was referred to the European Court of Justice. And again, the European Court of Justice came back and said, "Contractual commission payments arising from sales must be taken into account and he must be paid an equivalent sum when he's on holiday. Any reduction in normal pay is likely to deter workers from taking holiday, and that's not appropriate because this is a health and safety measure. People should take holiday and take a break away from their work".
So, by 2014, we really had reached a common ground position that people must receive their normal pay when on holiday.
So, if we move on then, the next thing that the Supreme Court does in the Agnew decision is then looks around and goes, "Well, if you're bringing a claim for underpaid holiday, how do you do it? Where's the right to claim?"
And it first looked at the Working Time Regulations Northern Ireland, and that was Regulation 48 of the Working Time Regulations 2016. In that one, it said, "A claim for failure to pay holiday pay must be brought within three months of each alleged instance of underpaid holiday pay".
So, in other words, if I had taken holiday and been underpaid in August, September, October, and November, I needed to bring my claim three months within August, three months within September, October, and November. And if I waited until November to bring my claim, I had lost the ability to claim that period in August.
So, it must be within three months of each alleged underpayment, and that was a serious problem for the Working Time Regulations. It didn't allow backdated claims to go beyond three months.
The other way in which holiday pay cases could be brought is under Regulation 45 of the Employment Rights Order. And we'll come on to see what case decided that it could be brought under that legislation.
The benefit of bringing it under the Employment Rights Order was that it allowed this backdated claim. Any of you familiar or who have ever faced an unlawful deduction from wages claim will know that claims must be presented three months beginning with the last in a series of deductions. And the Supreme Court refers to this as a series extension. You can extend it beyond as long as it's the last in the chain of deductions.
So, in my example, if I was taking holidays August, September, October, and November, I could bring my claim in November or December and still let it go back to August and claim that because they're all linked in a chain.
So, if we move on then, in terms of the case that said, "Yes, a holiday pay case can be brought either under the Working Time Regulations or indeed on the Employment Rights Order", was that of HMRC v Stringer. And it was a House of Lords. It's before the Supreme Court changed its name, 2009.
And it said, "A failure to pay holiday pay could be brought as unlawful deduction from wages under the Employment Rights Order as well as under the Working Time Regulations". And that would then allow the series extension provisions of the Employment Rights Order to apply to holiday pay.
In fact, Mr Stringer was only looking for one underpayment. It wasn't of benefit to him, but it was recognised that this potentially opened up large historical claims. And there was a bit of a kerfuffle and there was a bit of panic about, "What should we do to try and stop these historical claims happening in GB?"
And we'll come on to see it after this in the next slide that the Bear Scotland case was really the basis in which the GB government decided to introduce the Deduction of Wages Limitation Regulations 2014.
In fact, if you look at the dates from these regulations being implemented and the Bear Scotland decision, which we'll come on and look at in a moment, the Bear Scotland decision was issued on 4 November 2014. These regulations were laid before the parliament and approved on 17 December 2014. They came into force on 8 January 2014, and then they had a six-month transitory period before they were active.
So, they really were aware in GB that this could have a huge potential in terms of backdated claims, and the government there chose to take steps to try and put a fetter on that.
And the Deduction From Wages Limitation Regulations, which do not apply to Northern Ireland, created this two-year backstop. So, if you were bringing a claim for unlawful deduction from wages, then you could only go back two years from the date of your claim for any claims that were presented then on or after 1 July 2015.
Bear Scotland was the next point that the Supreme Court looks at in their judgement, and I've referred to it as well. Bear Scotland v Fulton were construction workers, and they, when they had taken holiday, did not receive their overtime.
Bit of a surprise, really, having had Williams and Lock, that at that stage they were still debating what normal pay should consist of. There was still an argument that normal pay should be your normal working hours and shouldn't include overtime.
There were a series of cases about what type of overtime should and should not be included, and I remember us talking about this way back in 2019 when the Northern Ireland Court of Appeal issued its decision and going through the various types of overtime that were available.
You have your guaranteed compulsory, which was always accepted could be included in the calculation of overtime. That's where you're guaranteed it, and if you're offered it you must work it. And then there's the guaranteed non-compulsory, as in you're guaranteed four hours but you don't have to work it even if you don't work it. And then there's the voluntary overtime as well.
Bear Scotland was the case that decided, "Well, workers just should receive their normal pay for the 20 days Working Time Directive holidays, and any regular overtime, regardless of what label is put on it, should also be included". So, that can be a regular amount of overtime irregularly worked. So, I work overtime, but I work a different amount every week. That's included because you're regularly working overtime.
And any other supplemental payments intrinsically linked to the work done must also be included when calculating Working Time Directive holiday as well.
To be normal, it said, payment must be made over a sufficient period of time. So, that was all pretty standard, and we were all nodding in terms of what Lock and what Williams had held. I've put green ticks there, as those were all held to be correct findings in the Bear Scotland case.
The case was heard by the President of the Employment Appeals Tribunal, Mr Lord Justice Brian Langstaff. And when the case was being run beforehand, there was a lot being made of the policy implications and the huge financial costs that what he was saying would do.
I think they were saying things that are being said in Northern Ireland at the moment. You're going to bankrupt employers. It's going to be huge cost to claims. And that may have weighed in his thinking on, "How do I mitigate the effects of this decision and put some sort of fetter on these backdated claims?"
And as I said, when this decision was issued, at that stage the deduction from wages, the limitation, the two-year backstop, had not yet been passed.
And so, in his decision, what he said was two things. I think it was his attempt to try and mitigate the impact of this decision in terms of the financial effects. The first thing he said is a series of deductions in relation to this chain of deductions, a period of three months or more within the chain itself will break the chain in the series of deductions and that would limit back payments to employees.
So, if there is a gap of three months between each underpayment, if it's broken up by virtue of the fact, for example, the person hasn't taken holidays for three months, or they've been on maternity leave, or in fact, they haven't worked overtime on a compliant payment that they've been paid correctly, that will break the chain and they will no longer be able to go back on a date predating that, and they will only be able to do any underpayments that are after that then.
And that was his first step of trying to, I think, mitigate the impacts of the decision. As we'll come on to see, the Supreme Court really didn't like that, and thought that President Langstaff had gone off on a whim on his own, that this was never in the jurisprudence in series of deduction cases before this case. And indeed, there was case law there to suggest that the contrary was the case, that a gap of three months within the chain itself wouldn't break the chain. But regardless of that, this was the finding in the case, and that really was the first step.
The other step that he took, and again, it may have been his way of mitigating the impact, was that he said holidays are taken in a sequence. So, what he found was that the first 20 days in a leave year would be your Working Time Directive pay. Thereafter, you would have your Working Time Regulations day and your contractual day.
He was sort of moved by this argument that the Working Time Regulation, the 1.6 weeks, was described as additional leave. That must import something about the order in which it's taken. Working Time Directive is first, Working Time Regulations is after, and then any contractual leave is thereafter.
And the significance of that was that if you're taking your Working Time Directive first in the year, you then had a period potentially of months that followed up thereafter in which you were paid correctly for your Working Time Regulations holiday and your contractual leave. That, again, would break the chain and would prevent these historical back claims coming along.
So, that was Bear Scotland and that was the position really we were in before the case of Agnew and the PSNI, which we'll come on to look at now.
I think it's important to understand all that history so you can put in context the questions that were then asked to the Supreme Court.
As I said, in the Supreme Court, they had accepted that they had underpaid holiday, it was never in dispute, but they had raised issues on what is a series of deductions? Is Bear Scotland correct in saying that a gap of more than three months within the chain had broken the chain, or was it correct that a correct or compliant payment . . . I hadn't worked overtime, I was paid correctly for the holiday, my Working Time Regulation holiday was paid correctly, or my contractual leave was paid correctly. Does that break the chain?
And then the next question that the Supreme Court looked at is, "Is leave taken in a particular sequence? Was the President Langstaff correct when he said that Working Time Directive leave is first, followed by Working Time Regulations, followed by contractual leave?"
Then there were questions about how pay should be calculated. What's the correct divisor? And we'll come on to look at what that means. And what is the appropriate reference period? If I'm calculating leave, do I look back that 12 weeks as provided by the Employment Rights Order, or do I look back a longer period? And those were the questions that the Supreme Court were looking at.
I understand in terms of nominating the lead cases in this, the claimants looked around to get people of suitably representative of ones who'd been on maternity leave, people who had been away in reserved forces, those on sick leave, and those who just hadn't taken leave as well.
So, one of the big issues, and I think the big issue in terms of the Supreme Court, is this "What is the meaning of a series of deductions?" And I spent some time on it.
The first thing it said is that there's no definition of law of what a series is or how it may be brought to an end. In fact, it used that phrase, which lawyers laugh at, when it said, "Series has the ordinary English meaning". And I think we almost have different dictionaries because we all have a different meaning when we argue these points in court.
But it then went on to draw analogies to detriment and discrimination claims, which must be brought within three months of the last act or the last in a similar chain of acts. And it was really persuaded by the fact that if there's a break of three months within the chain between detriment claims or continuing acts of discrimination, it doesn't mean that those acts are out of time. It can still be brought within three months of the last act.
What the Northern Ireland Court of Appeal called it when it heard its case is that when you're looking at a series of deductions, you just don't look at the time, but you also look at what's the common and the connecting factor linking each act to the next. And in here, what's the common and connecting factor linking each underpayment to the next?
What the Northern Ireland Court of Appeal held, and indeed what the Supreme Court held, is that common connecting factor is the fact that you're calculating it in the wrong way. You're calculating it on the basis of basic pay and you're not doing it on the basis of normal pay. That's what the chain is and that's the linkage between the chain. And if that link continues, then the chain is not broken.
The Supreme Court was . . . and I think this is where we're starting to see the influence of the Uber case. That was the worker status case for the Uber drivers, and it really changed the way that courts approach these types of cases.
And what the Uber influence is, is that you must start when you analyse any case by looking at the legislation and looking at what the purpose of that legislation is. The Supreme Court in this case reminded itself that the purpose of this legislation in respect of holiday pay and the Working Time Regulations is to protect workers, some of whom are very vulnerable and the lowest paid, from being paid too little for the work that they do.
And it also reminded itself that this is an important protection to workers in relation to payments, and indeed that Part 4 of the Employment Rights Order is called the Protection of Wages. That was what their duty was to do in deciding this case, was to protect wages that were due and owed to the workers.
So, to answer the question then, what is the meaning of a series of deductions? Is a series ended by a gap of three months between payments or by a lawful payment? Or is the series a question of fact to be decided on the facts of each case?
And it answered it in this way. It said, "A gap of three or more months in a series of deductions does not automatically break it in itself. A lawful payment made in a series of deductions does not automatically break it itself. What you must look at", and this is where the question of fact comes in, "is there sufficient similarity of subject matter such that each event is factually linked with the next in the alleged series? That will be enough to amount to a series".
So, prior to Bear Scotland, the Supreme Court reminded itself it hadn't been suggested that a three-month gap between deductions would break the series, and in fact, it did see that there were cases there that suggested the contrary and found very much that Bear Scotland got this point wrong.
So in conclusion, then, in terms of what a meaning of a series of deductions is, Supreme Court said, "A series is essentially a question of fact that must be considered in all the relevant circumstances". And it put out a number of guidance then about what those circumstances would include.
They include the similarities and the differences between payments, the frequency of the payments, their size, their impact on the individual, how they came to be made and applied, what links them together, and all other relevant circumstances.
It then went on to use a word that's quite beautiful: a contiguous series. That means an unbroken chain is not a requirement, but it may be a relevant factor. If the series remains intact will depend on the nature and the reasons for the claim and how the lawful payment has come about.
So, in that example where if I had simply not worked overtime, and therefore, when I had taken holiday, I was paid correctly, that compliant or lawful payment is not going to break the chain because, in what the Supreme Court decided, the common fault or the unifying vice that underpins it still exists.
PSNI are still calculating on the basis of basic pay. Simply because I happened to take a holiday and hadn't worked overtime prior to the holiday and it happened to be correct wasn't enough to break the chain. The chain was still in the link.
So, with that and having decided that a gap of three months doesn't break the chain or a compliant payment doesn't necessarily break the chain, it really put this next question of less significance, which the Supreme Court recognised when it came on to decide it. Is leave taken in a particular sequence?
If you remember in President Langstaff's decision, what he had found is that the Working Time Directive days were first, and if they were underpaid, and then you had your Working Time Regulations, and your contractual leave, that was your compliant payments that could potentially break the chain.
And so, this question really wasn't of much significance in the case, but it still went on to look at it.
And what it found is that leave isn't taken in strict succession. Mr Kelly says this. "Joe Bloggs doesn't come along to say, 'I'll have one of my Working Time Directive days', 'I'll actually have one of those week contractual days today', or, 'I'll have a Working Time Regulations day'. They don't care where the leave comes from. They just care how much leave they have and that they want a day's leave. And it's a bit nonsense really to suggest otherwise in terms of how it operates in practice".
It said the fact that the 1.6 weeks is referred to as additional leave doesn't say anything about the order in which it's taken.
It then held that each day is made up of a fraction of the whole entitlement, and this really was the brainchild of our then-Vice President, now President, who called it the composite whole.
Each day is made up of a fraction of each other day. In other words, if you're entitled to 33 days a year, 20 over 33 of every day leave you take will be your Working Time Directive days, 8 over 33 will be your Working Time Regulations day, and your extra 5 over 33 will be your contractual entitlement. So, each day we will have a proportion of Working Time Directive date leave attached to it.
Now, the other dicta that the Supreme Court held on this, and it's not entirely clear what it means, but it's an important phrase, is it says, "Insofar as it's not practicable to distinguish between different types of leave, then all leave the worker is entitled to must form a part of a composite pot".
In other words, the default position is that every day is a part of a composite whole. Every day of leave is made up of a bit of each. That's the default position, and it's only the insofar as it's not practicable to distinguish it. So, if it is practicable to distinguish it, arguably then the composite pot doesn't apply.
In what circumstances it would be practical to distinguish is not clear and no further guidance is given by the Supreme Court on that point.
So, that's questions one and two. The next question that the Supreme Court looked at was the correct mode of calculating holiday pay. How do you calculate the daily rate of pay? Is it the number of days in a four-week leave period by the number of calendar days or working days? So, is it 4 weeks if it's 4 over 52? And if it's 20 days then, is that over your 352 calendar days or 260 working days?
The Industrial Tribunal had said it was calendar days. The Northern Ireland Court of Appeal said no, that was wrong, it should be working days. And the Supreme Court agreed with the Court of Appeals, saying it should be working days. To use calendar days, it was like comparing apples and oranges. It wasn't correct. And obviously, if you use calendar days, it's also a lesser amount. So, if you're using the 20 days, the divisor should be the working days and not the calendar days.
So, the last question then that the Supreme Court did . . . and it applied very minimal time to this. In fact, it's been referred to as a light touch approach to the appropriate reference period. What is an appropriate reference period?
So, if you're calculating leave and you're looking back to get a representative average, do you look back 12 weeks as set out in the Employment Rights Order? Do you look back 12 months, which I know in GB they have available by virtue of the regulations that came out in April 2020. They now have a 52-week reference period. We do not have that in Northern Ireland. But is 52 weeks a more appropriate reference period to use?
What the Supreme Court held was that it's a question of fact in each case. It encouraged the parties, essentially for pragmatic reasons, to use a 12-month reference period.
Now, bear in mind this case is about historically calculating holiday pay, so that encouragement in using a 12-month reference period may just be aligned to the fact that if you're going to try and calculate these historic cases, use a 12-month. Don't try and use your 12-week rolling period. How far that's suggesting that a 12-month reference period should be used for calculation remains to be seen, but there is guidance that it's a question of fact in each case.
So, that was the four questions and the four answers that the Supreme Court gave. What do we know now? Well, what we know was workers must receive their normal pay for the 20 days' Working Time Directive leave.
Normal pay includes payments that are intrinsically linked to the work done. So, your commission payments, your overtime payments, your acting-up payments, etc., should all be included in the calculation of holiday pay.
An irregular amount of overtime regularly worked, so it's about the regularity of overtime rather than the label that might be attached to it, must be included in the calculation of holiday pay.
And if that's the case, you're working an irregular amount, you're knocked into that no normal working hours and you're using the look-back method to calculate holiday pay.
When calculating holiday pay, the divisor is working days, not calendar days.
And this three-month gap or a correct payment does not necessarily break the chain. What you're looking for is you're looking for that underlying vice and that common fault. And if that persists, then claims can go back until the later of 1998, which is when the Working Time Regulations were implemented in the UK, or the start of employment, if the underlying vice has persisted in that time.
The other one I could add on that, and I probably should have put it on this slide, is that the default position is each day is made up of a composite whole.
The default is not that it's taken in any particular order. It is that each day is made up of Working Time Directive leave, Working Time Regulations leave, and contractual leave.
So, that really is a bit of a digest of the Supreme Court. I'm going to pass you over to my colleague, Kathryn, and she's going to find out really what is happening on the ground with you and what we don't know.
Kathryn: Thank you, Michelle. That was a really comprehensive summary of really the holiday pay journey and how we got to the Supreme Court judgement, and what we now know about how to calculate holiday pay.
There are certain aspects of the judgement, as you rightly highlighted, that are not particularly clear or concise, and therefore, we still have some uncertainty from employers about how they do it, how they calculate holiday pay, and concerns that they potentially are not compliant.
So, this section of the webinar, I'm going to examine the impact of the decision from a practical perspective, looking at some typical scenarios that our member companies have presented to us, and hopefully give you some guidance and some clarity, then, in relation to those issues.
As Michelle has highlighted, the Supreme Court has ratified the earlier Northern Ireland Court of Appeal judgement, so there's nothing particularly new in that regard. And the Supreme Court wasn't being asked to consider whether overtime should be included within the calculation of holiday pay. That has very much been settled for a number of years. It is our understanding from speaking to and engaging with the businesses and the organisations that we represent that many have been compliant with that judgement since 2019.
So, we're keen in this section really to understand is that reflective from your experience? How have you been doing it? What is the impact for you in gauging your experience? So, we're going to look at some scenarios and we're also going to do a number of poll questions. We'd encourage you to participate so that really you can get the benefit from the answers, if possible.
With that in mind, we're going to ask you our first two poll questions in relation to the calculation of holiday pay.
So, at this point in time, are you paying your holiday pay at the basic rate of pay or at normal remuneration? And whether that's for the 20, 28, or for all, how are you calculating? If we focus on the 20 days under the directive, how are you calculating that? Is that on basic pay or is that for normal remuneration?
So, if I just see then the percentage of that. I can see it there. Maria, if you could share it with me. It seems to be more than 50% are using the normal remuneration as the calculation. So, more than 50% of you are really, in a sense, compliant with the case law as it's been.
Just to see if I can see the actual percentage. Okay. So, 64% are applying the normal remuneration, and then 36% are paying at basic rate of pay. So, there's some concern and some potential liability for those who are paying at the basic rate of pay.
We move you on then to our next poll question. So, if you're paying holiday pay at the normal remuneration, are you paying that for your 20 days, your 28 days, or for all annual leave? So, including the contractual leave that you give your employees, if you give them any.
It's fair to say, as Michelle has highlighted, that prior to the plethora of cases that we've discussed, such as Williams and Lock and Bear Scotland, that employers did believe that they were paying holiday pay correctly and in accordance with the legislation.
And following, as Michelle has said, from that decision in Bear Scotland, there was the introduction of the two-year backstop in GB. We didn't bring that into play here in Northern Ireland for reasons that Mr Farry has given, that it may be open to challenge or that perhaps GB have got it wrong in the past and they were adopting a wait-and-see approach.
So, there is speculation that that may be challenged in GB, the two-year backstop. I'm not convinced on that. So, we've got a wait-and-see approach.
If we look at our answers . . . So, are you paying holiday pay at a normal remuneration, are you paying that for your 20 days, 28 days, or all annual leave Surprisingly, and this is a surprise, is that the majority of those who have responded, 78% I see are actually paying all annual leave at normal remuneration. And that is a surprise. That's not what I expected.
So, in terms of your concerns of risk are probably very, very low at this point, and we'll go on to that in a wee bit more detail if you're paying more.
So, if we look to our first practical scenario, if you like, this first scenario, are we compliant if we pay all holidays at normal rate of remuneration? That's the 78% of you that just responded.
As Michelle has highlighted, the obligation only applies to the Working Time Directive holiday, those 20 days. So, if you're paying all holidays at the normal rate of remuneration, on the face of it you will be compliant, and you potentially don't even need to worry about the composite whole approach because you're paying it all at that rate.
However, and I do say the however, what you need to be sure is that all of the in-scope payments have been included in how you've calculated that normal rate of remuneration.
Michelle didn't get into this in detail because it was very much settled, but when you look at the in-scope payments, we're talking about the overtime, we're talking about the commission payments, the allowances such as your on-call payments, your shift premium, your acting-up premium, your location allowance. Are you satisfied that all of the component elements of what is normal pay are being included within that pot?
If not all of the correct payments have been included in the normal remuneration bit, then if there is a financial detriment, that potentially then can open up the chain to that historical underpayment claim.
When you are then also looking at the payment and what's made up of normal remuneration, as we've highlighted, the divisor that you use is also of importance. So, are you using your correct divisor? Are you using a calendar day approach? Again, that will reduce the amount that the individual is receiving and potentially will open the chain. Or are you using the working days, which has been endorsed by the Supreme Court?
The reference period is something you also should consider about what your reference period is. In my view, the risk of the reference period and whether that's reflective, whether that's 12 or 52 or 12 months, is probably lessened if all of the days, all of the 28 or whatever contractually, are also then getting that enhanced payment, because all of the days will have an element of increased payment.
We will move on then to our next poll question. This is really focussing on that principle or the concept of the composite whole approach, which, as Michelle said, first originated from our own Industrial Tribunals where despite all the cases, this was the first time this idea really was put forward and has now been ratified by the Supreme Court, something which we understand Mr Kelly is particularly pleased with.
So, if you're paying your normal remuneration for those days' leave, are you nominating the days for the Working Time Directive holiday? Are you nominating those first 20 days? Or are you adopting the composite whole approach?
So, as Michelle has highlighted also earlier, Mr Kelly put forward that this was illogical and a bit of a nonsense, particularly where the carryover provisions apply where someone has carried over some leave until the next year and how that would really work in practice, whether they were carrying over the regulation leave and then that would be taken before the directive leave.
So, again, surprisingly, but great to see that the majority of you are applying a composite whole approach. Eighty per cent are actually using that composite pot, and each day of leave then is made up of those component factors.
And that leads us then into the next question that we have. So, are we compliant if we nominate the first 20 days as Working Time Directive holiday and only pay the normal remuneration for these days?
This was very much the position from Bear Scotland, and we know from our experience that many employers did, through a policy document or through a contract, nominate the 20 days in practice for the directive holiday and pay it at that rate, or simply just applied that through custom and practice. That's what they understood that they were compliant with.
That was subsequently called into doubt following Agnew. And the Supreme Court has now said that in the absence of it not being able to be practically distinguished from Working Time . . . if it's not possible to practically distinguish between the different types of leave, then it all goes into the composite pot.
So, the default position is it's very much within a composite pot, a composite whole approach, unless you're able to practically distinguish between the different types of leave.
Now, unfortunately, as we've highlighted, there's been no guidance as to how or when and what circumstances that you would be able to practically distinguish. Is that simply in your policy document where you say, "Well, these 20 days are the first"? Are they the Working Time Directive leave attracting that higher rate, or is there some other way in which you would do it?
Now, I know from listening to a lot of commentary and webinars in the last few weeks that there are mixed views about really is it possible to practically distinguish how you would go about that?
As we've said, Mr Kelly viewed that as a bit of an illogical and a bit of a nonsense when it comes down to operationally in a workplace how that would happen. And I know counsel for the civilians and police officers involved in the Agnew case agreed with that. He didn't see how it would be possible to do it.
But aside from the legal theory of it, let's look at it practically, the answer here for this question. So, if you nominate the first 20 days as Working Time Directive holiday and you've paid it at the normal rate, would that be okay?
So, as Michelle has said and Christine said at the outset, I enjoy maths and I enjoy the data, so I ran a bit of a hypothetical scenario for my own interest. And what I did was I looked at a fixed reference period of 12 months. So, that was my static reference period of 12 months, and I gave a hypothetical basic rate of pay and a hypothetical normal rate of pay.
So, looking at the 28 days' leave that my hypothetical employee was afforded to, I looked at, "Was there a difference in applying the 20 days approach at the start of the year and paying normal more remuneration to those 20 days as compared to applying the composite whole approach?"
And really interestingly, there wasn't. There was pennies difference if you paid the first 20 days at normal rate and the remaining 8 at basic, as opposed to having each day of leave made up of your higher and your lower rates of pay.
However, that may not always be the case, that may not always be the answer, and that potentially can be skewed depending on your reference period and whether that reference period is shorter and fixed or rolling.
So, if I could give you another example where it potentially wouldn't work, it's that if you have your 20 days at the beginning of leave year and you're using a 12-week rolling reference period . . . If your autumn and winter months, so anywhere from September to December or to February, etc., are quite quiet and very little overtime, if you nominate the first 20 days and use a rolling 12-week reference period, that holiday and that Working Time Directive, those 20 days will probably be at a lower rate.
If your spring and your summer months are higher rate of overtime and you're busier, then the holiday that's taken at the end of the year potentially will be at a higher rate.
But if that is your regulation holiday and your obligation is only to pay it at the basic rate of pay, then employees will be disadvantaged. So, they may well lose out. There may well be a financial detriment.
So, the answer is you may or you may not be compliant. It will really depend on the reference period and understanding, "Is there a financial detriment put to these individuals?" If your work is seasonal, will the pay be potentially lesser if you apply those 20 days at the start of the year?
And what we have been saying to employers is to run the figures. Take a sample of your employees looking at your reference period, run the figures, see is there a difference. See if applying a composite whole approach is very much neutral.
If you nominated the first 20 as directive holiday, if you used a composite whole approach, is there any difference? Or is it very much of a muchness, or actually, no, when you take a sample, you can see that different employees or your workers are financially worse off you nominating the first 20 days. And if that's the case, then the safest thing to do is to apply that kind of composite whole approach.
That takes us nicely then to our next poll, and it's the issue really about the reference periods and what reference periods people are using. So, when calculating your holiday pay, do you look back over a reference period which is 12 weeks, 52 weeks, or some other reference period?
So, we know the 12 weeks are coming from the Employment Rights Order, and the 52 weeks is something which has been used in GB and is legislated for in GB. But a lot of employers have either been using/adopting a 52-week reference period or a 12-month reference period in light of the case law.
So, very much evenly split that you are using . . . just around half of you are using the 12 weeks, half of you or thereabouts are using the 52 weeks, and then a small minority are using some other reference period.
If we move on then to our next question, it's about the reference periods. So, for those of you who aren't using the 12-week reference period, which comes from the Employment Rights Order, are you compliant if you use a different reference period for calculating holiday pay that's not looking back?
As Michelle said, the provisions of the ERO, the Employment Rights Order, are quite complicated, but really what it did is it separated out essentially those who had normal working hours through their contract of employment and those with no normal working hours.
The effect of the case law was that even if you had normal working hours, for example, if you were 9-to-5 Monday to Friday, if you regularly worked an irregular amount of overtime, it almost kicked you into that no normal working hours category. And therefore, employers looked back over a 12-week period.
We know from our member companies that many took a pragmatic view. Rather than having to make a determination of what was regular or what was normal, they simply included any payments within whatever reference period they adopted, whether that was 12, 52, or 12 months so that there weren't almost satellite arguments or satellite litigation about what was regular or what was normal.
The Employment Rights Order is kind of the statutory default position as to what the legislation is saying you should be using, what reference period you should be using. But case law has demonstrated that other reference periods may be practicable or may be reasonable or appropriate to really gauge a reflective assessment of the normal working pattern.
So, based on Agnew and the Supreme Court judgement, it is saying that a 12-month or a 52-week period may be sensible in the circumstances because it will give a reflective pattern and a reflective assessment of this individual's working pattern, and not potentially going to be skewed or impacted upon by peaks and troughs in your business.
So, if you haven't used one from the ERO, if you haven't used a reference period of the 12 weeks under the Employment Rights Order, how have you determined that reference period? Is it appropriate in the circumstances? It's a very much a factual matrix, a factual determination, but as long as you can demonstrate the reasons why you've decided on that reference period, that it is appropriate, that it is reflective, and it hasn't been done to really skew or manipulate the amount of money that the individual will receive.
So, we move on then to our next question. We've not paid holiday correctly. How far back can tribunal claims go? And this is obviously a significant concern for employers and was primarily the main focus of the PSNI in pursuing these appeals right up to the Supreme Court.
Before I answer that, it's important to take you back to when and how the right to paid annual leave came into play. So, the 1993 Working Time Directive, which was to be implemented by member states by November 1996, gave workers the right to four weeks' paid annual leave.
Now, that was brought in and there was a challenge by the government at that point, and what they said was that, "We are exempt from these provisions because we believe this is social charter and there's an exemption". And the European Council said, "No, this is brought in from a health and safety perspective".
So, the rights should have been in by 1996, but because of that challenge, there was litigation and it was delayed until that had been determined. So, the European Court determined in 1997 that, "No, this needs to be implemented by member states". And in 1998, the regulations were brought into play.
Now, ironically, by the time the challenge had been determined and concluded, there was a change of government, and that Labour government went beyond the 24 weeks and gave this additional 1.6 weeks' rights under the regulations.
So, that's kind of the history as to when these rights should all have been brought into play. Arguably in 1996, but then the effect of 1998.
What we know from the Supreme Court is that Bear Scotland was wrong insofar as the three-month gap won't necessarily break the chain in the series of deductions. A correct payment won't necessarily break the chain if the unifying vice remains. So if, in other words, your practice or your procedure continues to be that you pay holiday pay correctly.
It's not to say that all gaps won't break it or it's impossible to break the chain. For example, if I was an hourly-rated employee and I worked overtime for a number of years, and then I was promoted to a manager, if I was then salaried and didn't get overtime or didn't get any other payments that should have been within scope, that could break the chain even if I go back and subsequently become an hourly-rated employee.
But in answering the question, if you've not been paying holiday pay correctly, if you've never been paying holiday pay correctly, then your gaps of three months won't necessarily break it.
And there's the potential for those claims, as we've seen with Agnew, to either go back to the beginning of employment when that individual started working for you and being incorrectly paid, or to the introduction of the Working Time Regulations, whichever is the latter.
Our final poll question then is just following on from the on-going litigation, because we understand and we know that there are hundreds of thousands of claims before the Industrial Tribunal. Those of us who are involved will continue to receive further fresh claims every three months. But do you have any pending claims in the tribunal for unpaid holiday pay? Yes or no. Do you have pending claims?
I noticed from being on the tribunal website that their landing page now is specifically dedicated to holiday pay. So, they are kind of trying to signpost those claims and queries at the outset and direct people where to get information.
So, do you have pending tribunal claims for unpaid holiday pay? No, which is great. It's great to see so many of you aren't faced with litigation then in the tribunal or having to defend those claims that you potentially have.
So, our last scenario then is we have claims. So, for the 13% of you that have claims in the tribunal, what should you do? So, Mr Kelly, our now President, was very clear even before this judgement was issued that he expected the parties to adopt a pragmatic approach and a practical approach.
Practitioners have received a letter encouraging us, different parties, to come together and try and engage and resolve these issues prior to them starting to be re-case-managed. And there is a user group meeting in a few weeks to really focus on how we resolve the backlog and get through the cases that are sitting.
You need to look at, if you have a claim in the tribunal, if there is a legal argument in this claim that you have. Other than we haven't been paying it correctly, have you a legal argument? Is there a time point issue?
For example, "We changed our practice a number of months ago, a number of years ago. By the time these individuals lodged the claims, there was a three-month gap between the last correct payments. We had corrected our payment, and therefore that is a legal argument that we wish to advance and we're going to continue with that litigation".
If there's no legal argument, in other words, if you haven't been paying it correctly and you simply have been paying a basic rate of pay, then you need to really think about do you want to invest in time and resource but also potentially throw good money and bad in continuing to defend this litigation? There potentially will be an issue of costs if you're continuing to defend on meritorious claims.
The big issue in resolving all of these cases will be trying to work out what they're worth, what the value of the claims are, particularly if they're going back a number of years, because you may not have the data. You may not have the records.
HMRC require you to hold onto them for a minimum of seven years, your pay records, but obviously you're balancing that up against your obligations from a GDPR perspective for data minimisation.
So, you may not have the information to go back to 1998 or the beginning of employment to work out factually what this employee or these employees are entitled to receive. Therefore, you need to or you should look at really adopting a pragmatic approach, and try and engage with either the employees, employee reps, or the union if you recognise a union about how these issues can be resolved.
We know from our experience UNISON are encouraging sort of a banded approach depending on service. So, however length of service that you have, you will be in a particular band and that will be factored into the calculation.
We understand from listening to Carmel Gates from NIPSA that they will also be pragmatic and try to find a pragmatic resolution. And UNISON previously in GB, back in Bear Scotland time, had looked at it, and a 16% . . . so a percentage uplift for overtime for a two-year period, and that was a lump sum payment.
So, try where possible to look at the data that you have. What assessment can you get of the value of these claims, and what's realistic for the business to be able to pay it or the organisation to be able to pay it at this point?
Do take advice if you're not clear on whether there's a legal argument or not to be advanced, but in the background start to gather up your data and the information that you have for these calculations.
So, after today's webinar, really what should you be thinking about doing? Check if you are paying holiday pay correctly. Carry out your audit, as I said. Make sure that your in-scope payments are being properly included in your calculation. How long have you been doing that? From when you corrected the series or corrected that unifying vice, is that longer than three months? Is that your legal argument?
Is your representative reference period being used? If you haven't used the 12 weeks, can you demonstrate that the period that you have adopted is appropriate in the circumstances?
And the composite whole approach. If you are applying the composite whole approach, that's the safest way forward. But if you're not applying the composite whole approach, does that result in the financial detriment to those individuals, and could that potentially reopen the series?
If you haven't been paying it correctly and you have got claims then before the Industrial Tribunal, or you're concerned about potentially having new claims, for the new claims, correct your holiday pay calculations as a matter of urgency. So, adopt those principles that we have just talked you through and that guidance.
As I said, for the existing legal claims, is there a legal point to be considered? If there isn't, you may, to coin a phrase, ne on a highway to nothing, really continuing to defend. Try to adopt that pragmatic approach.
Be confident in your methods of calculation that they're correct, because that either could open up the chain in the series and going back to historical payments, or it might just give rise to speculative claims or queries that people think they're not very clear and they may think they have a claim.
And as I said, if you're unsure, take legal advice and reach out to an organisation for support if you need it.
So, thank you very much for your time.
Christine: Thank you very much, Kathryn. And thank you very much, Michelle. I'm just going to do a little bit of a wrap-up.
But what I want to say to the audience is if you do want to find out more about the Agnew decision, Mark McAllister of the LRA will be giving us his latest insights from inside the LRA and from the tribunals on how they're going to deal with Agnew.
We've also got Jason Elliott BL who'll be discussing his take on the implications during his Northern Ireland Case Law Review.
Both will be at the Legal-Island Annual Review of Employment Law on 7 November. Join us in person at the ICC Belfast or online if you prefer. Either way, we look forward to seeing you there.
Now, we have overrun. There was so much to get through and I didn't want to cut either Michelle or Kathryn off in their prime because I think it is really useful information.
Now, there were quite a few questions that came in. I hope that a lot of them have been addressed by Kathryn's kind of pre-emptive attack on the questions. I think that did cover a lot of the questions that people are asking, but we'll try and get the answers to you after the event as well.
Some people are asking about the slides. We will attach a copy of the brilliant slides as well because I think that's such a really useful reference point for reminding ourselves what we should be doing. I personally think I'll have Michelle and Kathryn on speed dial if I have any questions about holiday pay, so I think you should do likewise.
But thank you both very much for your great insights. Thanks, everyone, for joining us, and we will see you all very soon.
This article is correct at 15/11/2023
The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.