Holiday Pay claims limited to two years from July 2015

The Government has introduced new regulations in order to protect UK businesses from potentially damaging underpaid Holiday Pay claims.

The Regulations will also apply to most claims of unlawful deductions to two years before a Tribunal claim is lodged.

The move comes in reaction to an Employment Appeal Tribunal’s (EAT) decision in late 2014, which caused a significant level of concern amongst employers over the potential impact and cost of the decision to employers.

In the Bear Scotland v Fulton case in late 2014 the EAT held that non-guaranteed overtime must be taken into account in calculating holiday pay for the minimum four weeks’ statutory annual leave required by the Working Time Directive.

At the time of the decision, employees had the right to claim for a series of deductions from their wages within three months of the latest deduction.

In the Bear Scotland case, the EAT decided that a gap of more than three months between any deductions for underpaid holiday in the series broke the chain, thereby limiting the employer’s liability.

However, the EAT didn’t set a limit on how far back retrospective claims could stretch and therefore it did not completely rule out the risk of employers receiving claims for back dated holiday pay to 1998 when the Working Time Regulations first came into force.

The Government has therefore introduced the Deductions from Wages (Limitation) Regulations 2014 in order to reduce the potential costs to employers and to protect UK business from the potentially damaging impact of significantly backdated claims.

The new Regulations:

Limits the period for backdated claims to two years from the date of the claim.

The two year limitation period applies to claims for unlawful deductions from wages and to any sums payable to the worker in connection with his employment including any fee, bonus, commission and holiday pay , whether payable under their contract or otherwise.

However, certain types of claim, for example for statutory sick pay, maternity, adoption pay and so on, are excluded from the two year limitation.

Confirms the Working Time Regulations 1998 do not give employees a contractual right to paid holiday.

The Regulations make it explicit that an employee’s right to paid holiday, under the Working Time Regulations is not a contractual right that is part of an employee’s employment contract, but is instead a separate statutory right.

The purpose of this is to prevent employees bringing contractual claims based on the Working Time Regulations in the civil courts, where the limitation period would be 6 years. This may be significant where the terms relating to contractual holiday are different to holiday entitlement under the Working Time Regulations.

Only applies to any claims for unlawful deductions presented to a Tribunal after 1 July 2015

There is a risk that employees will bring claims before this date in order to avoid the limitation period.

Practical advice

While the new Regulations are helpful this area remains complex and any liability on employers to pay additional holiday pay will ultimately depend on the contractual arrangements between the employer and worker, the type of remuneration, the specific circumstances of the worker and the dates of the holiday taken historically.

Please book a consultation if you receive this type of claim and we will assist you in dealing with the claim.

By Donna Chadbone