Holiday Pay – what is a series of deductions?

The holiday pay cases keep coming. In British Airways PLC v De Mello & Ors the EAT considered two issues:

• Whether certain allowances were part of “normal remuneration” and should be included in holiday pay calculations
• How far back claims could go as a “series of deductions” in light of the Supreme Court’s decision in Chief Constable of Northern Ireland v Agnew

The claims were raised by cabin crew at British Airways.

Meal Allowance

A meal allowance was payable whenever a member of cabin crew was on duty at any mealtime. The allowance was payable even if the employee was unable to spend money on a meal at that time (eg they were on board a flight) and there was no requirement for the employee to prove that the allowance was spent on food.

The case law has established that payments linked to the performance of tasks should count towards holiday pay and payments to cover “occasional or ancillary costs” should not be included.

The Tribunal considered that the burden was on British Airways to show that the meal allowance came within the “ancillary costs” category, and it had not done so. It also referred to the possibility that it may be that some of the meal allowance was referable to performance (eg the extent to which the allowance exceeded the actual costs of food) and part of it may be linked to the actual expense.

The EAT upheld British Airway’s appeal and held:

• The burden was not on the employer to establish that the payment was for an ancillary cost: it was instead for the Tribunal to “weigh and assess the overall picture painted by the factual mosaic”
• The allowance could not be split: either it should be included in holiday pay calculations or it should not

The EAT therefore sent this element of the case back to the Tribunal for fresh determination.

Commission on duty free sales

10% of duty free sales on a given flight formed a commission pot that was shared among the cabin crew on that flight. This was paid monthly in arrears and was taxable.

The Tribunal concluded that these payments were linked to performance, but were at such a low level that it was “highly unlikely that their exclusion from holiday pay would have a deterrent effect on taking holiday” and that they should not therefore be included in the holiday pay calculations.

The EAT disagreed and held that the Tribunal should not have considered the lack of deterrent effect as a reason for not including the commission payments in holiday pay calculation. Even though the payments were low, they were referable to performance and should be included in holiday pay calculations.

Back to back allowance

One of the Claimants became entitled to an allowance part way through the year due to a change in role. For the first 7 months of the year, he had no entitlement, and once entitled he received the allowance in 3 out of the remaining 5 months.

The Tribunal took the view that the payment was not sufficiently regular to constitute normal remuneration as he had only received it in 3 out of 12 months.

The EAT found that this was an incorrect conclusion. The Tribunal should not have factored into its determination of “regularity” periods during which there was no entitlement because the employee was in a different role. The issue was whether once he became entitled to the allowance, it was sufficiently regular to be included in holiday pay calculation. The question to be remitted to the Tribunal was therefore whether earning the allowance 3 months out of 5 was regular enough.

Series of deductions

At the time of the Tribunal’s decision, it was bound by the principle established in Bear Scotland v Fulton that a gap of three months between deductions broke the series of deductions and a worker could not claim for any holiday pay due before such gap.

Since the Tribunal judgement, the Supreme Court has established in Chief Constable of Northern Ireland v Agnew that this 3-month gap principle was wrong: it was for the courts to determine whether there was a series of deductions taking into account all relevant factors.

For deductions to form a series, there must be a factual and a temporal link:

• Are the deductions “sufficiently similar” to be linked?
• Are they temporally linked or is the gap between them so long as to break the series

In this case, the EAT found that the deductions were sufficiently similar as they related to the same issues, but it could not determine whether they were temporally linked – that was a matter to be remitted to the Tribunal for consideration (but not applying an artificial 3-month gap test). This was a decision to be taken in light of all factors and not artificially split into two elements.

The removal of the 3-month gap rule means that we will probably have more cases that require a holistic determination of whether failures to pay correct holiday pay form a series of deductions.