Holiday pay and limits on unlawful deduction claims

Holiday pay and limits on unlawful deduction claims

The Employment Appeal Tribunal has recently given its decision in one of the long-running holiday pay cases (Fulton v Bear Scotland Ltd). It confirmed that a gap of more than three months between non-payments or underpayments of wages breaks the ‘series’ of deductions for the purpose of bringing an unlawful deduction from wages claim, thereby potentially further limiting the opportunity for claimants to claim backdated holiday pay.

Background and decision

The Claimants in this case claimed successfully that their employer had made unauthorised deductions from their wages when it failed to include overtime in the calculation of their holiday pay.  In the course of the litigation, the Employment Appeal Tribunal (EAT) made a novel and rather controversial decision that a period of more than three months between successive non-payments or underpayments would break the chain in a ‘series’ of deductions, for the purposes of bringing a claim for unlawful deduction from wages.  This meant that some of the Claimants’ claims were out of time as a period of more than three months had elapsed between deductions. 

A further appeal to the EAT recently confirmed this new principle.

Implications

The Government has already legislated to limit the ability of claimants to make historical claims for holiday pay in the Deduction from Wages (Limitation) Regulations 2014. These Regulations mean that employment tribunals can only look back two years from the date of the complaint when considering unlawful deductions.  

This EAT decision provides further confirmation that employers should not be faced with significant retrospective claims for holiday pay. If there is a gap between periods of holiday of around three to four months (depending on exactly when the holiday payments are made), the employee would not be able to claim for any underpaid holiday pay for any holiday they took before that period.

It should be noted that this decision and the 2014 Regulations apply in the same way to other unlawful deduction from wages cases as they do to holiday pay claims. Therefore, claims for non-payment or underpayment of items such as bonus and commission would also be limited in the same way.

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Hannah Ford

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