UK: Government acts to limit backdated holiday pay claims with effect from 1 July 2015

The government has laid regulations before Parliament to impose a two-year limitation on unlawful deductions from wages claims. The regulations come into force on 8 January 2015 and will apply to claims presented on or after 1 July 2015.

This represents welcome news for employers, although it will also prompt employees to action, to consider prior to July whether they have backdated claims.  These claims may well seek to challenge the recent EAT ruling on retrospectivity.

The EAT in Bear Scotland v Fulton decided that pay for the 4 weeks’ EU statutory holiday entitlement must be calculated to include an appropriate amount for regular overtime (at least where employees are obliged to work it if offered). Helpfully for employers, the EAT limited retrospective claims for a series of historic underpayments by ruling that a gap of three months would break any series; claimants can only bring a claim for underpayments in an unbroken series and provided the claim is brought within three months of the last in the series. As a result, many claims may be limited to the last holiday year. The union involved decided that it would not appeal, although this does not prevent the point being pursued further in other cases (perhaps including the Lock case due to be heard again in February 2015).

On 18 December 2014, the government laid regulations before Parliament to impose a two-year limitation on unlawful deductions from wages claims. The two-year limit will not apply to deductions from wages claims in respect of various statutory pay entitlements (eg, statutory maternity/adoption/shared parental pay, guarantee payments, payments for time off etc). This change will only apply in relation to ET1s presented on or after 1 July 2015, giving employees a six month window to lodge claims for back pay.

The regulations also provide that the Working Time Regulations entitlement to paid holiday does not confer a contractual right to such payment. The purpose of this is to prevent contractual claims to holiday pay (which could go back up to 6 years) in order to get round the tribunal claim limits. (Of course an employment contract might itself expressly include a contractual right to pay at WTR rates, depending on the drafting.)

The regulations have been discussed with the taskforce set up to limit the impact of the case on employers but are not a direct result of the taskforce's work, which is still continuing.

Click through for the government press release, regulations, and our blog update on the ruling. Please do contact us if you would like to discuss this further or would like a copy of our detailed briefing on the ruling.