UK: Employers could face holiday pay claims going back more than two years

Regulations introduced under the European Communities Act 1972 and in force from January 2015 placed a two year backstop on unlawful deductions claims for EU-derived holiday pay as well as other domestic statutory rights; the latter were covered in order to satisfy the EU principle of equivalence, ie, that EU-derived rights should be no more difficult to enforce than equivalent domestic rights.  It was suggested at the time that these regulations might be ultra vires and unlawful, on the basis that the domestic rights could only be limited in this way by new primary legislation.  That argument has finally been made and found favour in a recent first instance Employment Tribunal ruling, Afshar v Addison Lee.  The judge noted that his conclusion on this point "will be challenged and may be wrong", but if upheld by higher authority it would mean that holiday pay claims could theoretically go back much further (provided they form part of an unbroken series of deductions, noting that it has now been established that a gap of three months does not break a series).  This could permit claims theoretically going back potentially six years (if a Court of Appeal authority that the Limitation Act 1980 period does not apply is overturned) or, depending on the length of service of relevant employees, even to 1998 (when the Working Time Regulations came into force).

The ruling will be particularly concerning to employers facing actual or potential claims that statutory holiday has been underpaid through not fully reflecting 'normal remuneration' (for example, wrongly excluding certain types of overtime, commission or bonus payments).  It could clearly also have a significant impact on the potential quantum of historic claims which may need to be taken into account by parties to a business acquisition (in terms of price and/or indemnities).

Note that the EAT has recently confirmed in Main v SpaDental Ltd that, although tribunals cannot award interest under the Working Time Regulations, they do have the power to award "interest-like compensation' in respect of the loss caused by the delay in the payment of the holiday pay (ie the reduction in value due to the passage of time).  This may need to be reflected in the potential quantum of historic claims.