The two-year limit on claiming backdated unpaid wages, including holiday pay, is now in force

From today, 1 July 2015, employees will only be able to present claims for a series of unpaid wages going back a maximum of 2 years from the date of complaint.  The change to unlawful deductions from wages law has been introduced to address concerns that recent holiday pay cases would lead to a flood of backdated claims for unpaid holiday pay.

This new limitation applies to any underpayment of wages, fees, bonus, commission and holiday pay which a worker is seeking to claim as a series of deductions. It will not affect claims for a limited number of wages including statutory sick pay, statutory maternity pay and other statutory family leave payments.

Although the maximum period for an unlawful deductions claim will now be 2 years, employers can still seek to shorten this period if there has been more than a 3 month break between deductions at any point in that 2 years. The Employment Appeal Tribunal in Bear Scotland Ltd v Fulton controversially held that a chain of deductions is broken if there is a gap of more than 3 months between any of the deductions. So, if an employee had a period of 3 months or more between underpayments for holiday, they arguably could not recover pay prior to the 3 month break. For claims filed before 1 July 2015, when the 2 year limit does not apply, employers can seek to prevent deduction claims going back indefinitely using the principle set out in Bear Scotland.

For those employers wishing to correct ongoing underpayments in relation to holiday pay, there is, frustratingly, still significant uncertainty as to how, going forward, this should be calculated to include commission, overtime, bonuses or other payments linked to an employee’s employment.  It is not clear when clarification on this issue will be forthcoming.  

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