News & Insights

Mind the gap

Is there any limit to an employee’s ability to claim historic underpayment of holiday?  

In 2014, the decision in Fulton v Bear Scotland confirmed that, in respect of the four weeks’ statutory annual leave, it is necessary to take into account any non-guaranteed overtime when calculating holiday pay. It also determined that an historic underpayment of holiday pay could constitute a “series of deductions” and be reclaimed as part of an unlawful deductions from wages claim.

However, in an element of the decision that was favourable to employers, it also found that if the employee had correctly received their holiday pay for a three month period this caused a break in the series of deductions. This finding dramatically reduced employers’ potential past liabilities for underpayment of holiday.

This employer friendly element of the decision was questioned by commentators who speculated that it would eventually be overturned.

Clarity has now been provided as Bear Scotland (No.2) recently required the Employment Appeal Tribunal (EAT) to revisit the meaning of a “series of deductions” and the three month rule.

The Claimants appealed to the EAT arguing that the three month rule was not binding or alternatively that it was not a hard and fast rule. In the alternative, they claimed that it simply provided a strong presumption that a claim was time-barred but this could be rebutted.

The EAT dismissed the appeal and found that the three month rule did form part of the binding decision. It was, in fact, a clear rule and not simply a presumption which could be rebutted. The EAT also clarified that different considerations apply in whistleblowing and discrimination claims and thus it is appropriate that the interpretation of ‘series’ differs in those contexts.

The decision confirms that tribunals are bound to find that a gap of three months or more breaks the chain in a series of deductions, restricting the scope for employees to make retrospective holiday pay claims. Whilst this will provide comfort to employers, it must be remembered that the decision does not affect the obligation to take into account non-guaranteed overtime when calculating holiday pay going forward.