In a landmark ruling handed down on 18 June 2019, the Northern Ireland Court of Appeal (NICA) substantially upheld the decision of the Industrial Tribunal of 2 November 2018 which held that the PSNI & Police Authority for NI are liable for not including overtime payments and certain allowances in the calculation of holiday pay of police officers and civilian staff (Chief Constable of the PSNI & Northern Ireland Policing Board v Agnew & Others [2019] NICA 32).

We have set out a summary of the key findings and their implications for employers below:

  1. Is a police officer a “Worker” within the meaning of the Employment Rights (NI) Order 1996 (ERO)? And
  2. Does the EU Principle of Equivalence require that police officers must be treated as entitled to a remedy under the ERO for unlawful deductions from wages?

In the first instance, the NICA had to determine if police officers were “workers” within the meaning of Article 3(3) of the ERO and therefore entitled to bring unlawful deduction for wages claims under the ERO.  If they were not, whilst they could bring a claim for breach of the Working Time Regulations (WTR), they could not bring a claim in respect of a series of deductions under the ERO, which would have limited their ability to claim for historical underpayments.

The NICA held that police officers do not fall within the statutory definition of a “worker” contained in Article 3(3) of the ERO.  However, they were workers within the “autonomous Community law concept”.

Therefore, applying the EU principle of Equivalence (which requires that national remedies for breaches of EU rights must be no less favourable than those available in similar domestic las) they were entitled to pursue their claims under the ERO.

Whilst this may not be relevant to many employers, it may have implications for other employment / worker “status” claims especially with the growth of the gig economy and different ways of working.

3. Is the “series of deductions” under the ERO ended, as a matter of law, by a gap of more than 3 months between unlawful deductions and/or by a lawful payment or is this a question of fact in each case?

The NICA agreed that the Tribunal had been correct to reject the decision of the EAT in Bear Scotland v Fulton [2015] CMLR 40 that a series of deductions is automatically broken by a gap of 3 months between unlawful deductions from wages, or by a lawful payment saying that to hold otherwise, would lead to “arbitrary and unfair results.”

The NICA held that where there is a series of deductions there must be a sufficient similarity of subject matter such that each event is factually linked with the next in the series in the same way as it is linked with its predecessor. The series is not broken by an occasional correct payment, or a 3 month period when the worker did not take annual leave or receive any holiday payment, as the series continues to be linked.

The Court considered that the factual link in these cases was the common fault of paying basic pay as holiday pay, regardless of overtime and allowance, and therefore the series of underpayments continued.

This finding is likely to be one of the most concerning for employers.  The underlying rationale seems to be that the series of deductions continues for as long as there is an intention to underpay. Thus, if the reason for the underpayment is that the employer simply does not include overtime pay in holiday pay calculations, a gap of 3 months between periods of leave would not break the series of deductions and the claim would remain in time.  This in turn raises the potential of significant claims for back pay as there is no 2 year Statutory time limit on claims for back pay in Northern Ireland, unlike GB. 

4. Is the 4 weeks leave under the Working Time Directive (WTD) taken first, before the additional 8 days leave under the WTR, followed by any other sources of annual leave?

In Bear Scotland the EAT considered that there were two types of leave as follows:

  • twenty days ‘European’ leave: the minimum to which workers are entitled under the WTD; and
  • additional ‘domestic’ leave, under the WTR, which goes beyond the minimum required by the WTD.

Following Bear Scotland it was generally accepted that it could be assumed that the first twenty days of annual leave is WTD leave and those holiday days that followed would be WTR leave, followed by any additional contractual leave. 

The Industrial Tribunal disagreed saying that each day of annual leave should be treated as a fraction of the “composite whole” entitlement.  The NICA upheld this stating that “a worker has an entitlement to all leave from whatever source and there is no requirement that leave from different sources is taken in a particular order.”

The effect of this is that each day of annual leave must now be treated as being made up of a fraction of WTD leave, WTR leave and, if relevant, contractual leave.

This is likely to cause significant difficulties in practice, as arguably every day of annual leave attracts enhanced WTD rights. On the other hand, if only a fraction of the day attracts WTD rights, then enhanced rate of pay should only apply to that fraction.  From a practical perspective, it is likely to be impossible to identify what fraction of the day attracts the enhanced rate and to separate this from the remainder which does not. Therefore, for administrative reasons employers may have to apply the enhanced rate to all annual leave days, which will inevitably increase the costs for employers.

5. What is the correct way to calculate the daily rate of overtime that forms part of a worker’s normal pay?

The police officers and civilian staff had cross appealed the Tribunal’s findings that holiday pay should be calculated by reference to 365 days (being calendar days) rather than 260 working days or actual days worked.

Allowing the appeal, the NICA used the example of a 12-month reference period and held that it would not be correct to divide the total pay by 365 as it uses both working and non-working days as the divisor.  In this example, a divisor of 260 was deemed to be appropriate as there are 260 working days in a 12-month period (based on a 5 day working week).

The implications of this finding in practical terms is that it could result in the total estimated liability for holiday pay increasing for all employers and, in this case, it causes liability to the PSNI and Police Authority to increase from around £30 Million to £40 Million.

6. What is the appropriate reference period for the assessment of normal pay?

For the purpose of the appeal, the parties agreed that the appropriate reference period for the assessment of normal pay would be a question of fact in each case.

The NICA acknowledged this and emphasised that this is a question of fact in each case and encouraged the parties to agree a “pragmatic and administration-friendly” method for calculating and paying “normal pay” based on averages taken over a rolling 12 month period immediately prior to the period of leave, whilst accepting that there was no obligation on them to do so.

Again this is likely to cause practical issues for employers as the appropriate reference period could conceivably vary for different categories of workers.  Moreover, the indication that the reference period should be a rolling period appears to envisage a calculation being done for each period of leave based on holiday pay in the previous reference period which is likely to create additional logistical and administrative burdens for employers. 

Implications

The case has been remitted back to the Tribunal for a final determination in terms of an award in individual cases.

It is not yet known if the PSNI will seek to appeal the decision to the Supreme Court, but given the potential liability for the PSNI and wider ramifications of the decision, it is likely that permission to appeal will be both sought and allowed.

The NICA’s decision leaves open the realistic prospect that employees in Northern Ireland will pursue holiday back pay claims as far back as the introduction of the Working Time Regulations in 1998, as the 2 year time limit on the ability to claim holiday back pay does not extend to Northern Ireland. This may present particular problems for employers where they do not have records going back to 1998, or where there have been TUPE /SPC transfers.

Whilst the decision only applies to the twenty days leave entitlement under the WTD, the administrative burden of apportioning different payments for different categories of leave means many employers may choose to apply the same principles for all types of leave, whether it is WTD, WTR or additional contractual leave.

Significantly for employers, the NICA was highly critical of the PSNI and Police Authority for continuing to calculate holiday pay by reference to basic pay, despite the recent high profile decisions on the issue. Therefore, employers can no longer adopt a “wait and see approach” and need to review their pay practices and take steps, where necessary, to ensure holiday pay is being properly calculated.

This article is a general summary of the legal issues and is not intended to be a thorough review or a statement of the law. Specific advice should be sought on a case by case basis.

If you require further information on the issues discussed in this article please contact: Ciara Fulton, Partner, Jones Cassidy Brett Solicitors Email: cfulton@jcbsolicitors.co.uk

https://judiciaryni.uk/sites/judiciary/files/decisions/Chief%20Constable%20of%20PSNI%20%26%20Northern%20Ireland%20Policing%20Board%20v%20Agnew.pdf