Retrospective holiday pay claims

Employers will be aware of a recent decision that non-guaranteed overtime must be taken into account by employers when calculating holiday pay for the minimum 4 weeks’ statutory annual leave – as required by the Working Time Directive. 

Under the Employment Rights Act a worker can make a claim for an unlawful deduction from their wages.  Where there has been a series of deductions, their claim can be backdated to the start of that series.  However, if the deductions stopped and then started again, thus creating a break in the chain of deductions, that may affect their claim.  From recent cases, it seems that if the ‘break’ lasted 3 months or more, any claims for deductions before that period would not be considered.

Although this “series of deductions” point appears to severely limit the scope for an employee to make substantial retrospective claims for unpaid holiday pay, it does not completely rule them out. 

The Government is keen to limit a worker’s ability to bring retrospective holiday claims, using what it sees as this ‘back door’ method of making claims for unlawful deduction from wages.  On 18 December 2014 the Government announced that it had laid regulations before Parliament to amend the Employment Rights Act 1996 to impose a 2-year limitation period on such claims.  These regulations will come into force on 8 January 2015 and the 2-year limitation period will apply to claims presented on or after 1 July 2015. 

If workers have a potential claim for backdated holiday pay, the introduction of these new regulations may convince them to act promptly.

The new legislation does not prevent employees from arguing that their holiday pay rights are expressly or impliedly incorporated into the contract.  For example, an employer could inadvertently create a contractual entitlement by making a reference in the employment contract to the calculation of holiday pay under the Working Time Regulations.  Were an employee to bring a claim on this basis they would have up to 6 years to do so, as this is the limitation period for breach of contract – much longer than the 3 month limitation period in the Employment Tribunal.

Nevertheless, employees who think they might have a backdated holiday claim should make claims as soon as possible.  Employers are well advised to check the wording of their contracts to ensure that they do not confer contractual holiday pay rights on workers or employees.  

Reggie Lloyd
01206 217347
reggie.lloyd@birkettlong.co.uk