Important Holiday Pay Decision

In recent years a number of court decisions have affected holiday pay entitlement and calculations.

We are still awaiting the outcome of the Government consultation seeking to reverse the Supreme Court’s decision in Harpur Trust v Brazel, which held that the holiday entitlement for part-year workers cannot be pro-rated and that the standard 12.07% method of calculating holiday pay was unlawful. That consultation closed on 9 March 2023.

A further consultation was then launched on 12 May 2023 which proposed simplifying annual leave entitlements (creating a single basic entitlement of 5.6 weeks, as opposed to the current distinction between the first 4 weeks of leave deriving from the Working Time Directive and the additional 1.6 weeks provided for by the Working Time Regulations), changing the way in which accrued leave is calculated during the first year of someone’s employment and also permitting rolled-up holiday pay to be paid for workers with irregular hours as that is also presently unlawful. That consultation closed on 7 July 2023. Given the similar subject matter, it is likely that in due course the responses and any follow up actions will appear together though there has been no movement so far.

In the meantime however, the Supreme Court has handed down another decision affecting holiday pay which may have immediate effects on any ongoing holiday pay claims live in the Tribunal. We have published a full update on this topic, but in short the Supreme Court has overruled a previous Employment Appeal Tribunal decision which had said that where there are a number of instances of holiday pay being underpaid a gap of three months or more at any point in that chain is sufficient to prevent the earlier instances from being part of a “series of deductions”. This is important because any claim for underpayments or unlawful deductions from wages must be made within three months of the deduction or, if there is a series of deductions, the last in that series.

Anyone facing a claim for unlawful deductions from wages currently proceeding before the Tribunal could therefore be in a position where a defence that had previously been pleaded in respect of a break in the series of deductions will no longer work, immediately increasing the potential liability for that claim. It would therefore be advisable to review any such claims and consider whether the prospects have significantly changed following the Supreme Court’s decision.