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EAT confirms bar on holiday pay deductions claim after three month gap

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The Employment Appeal Tribunal (EAT) has confirmed in Fulton and another v Bear Scotland that a gap of three months or more between one series of non-payments or underpayments and the next (in this case holiday pay), will break the ‘series of deductions’ for the purposes of bringing a tribunal claim for unlawful deductions from wages. The EAT was revisiting a previous judgment in this case following an appeal by the Claimants on this point.

Holiday pay and commission – the legal position

Employers must include commission and other similar payments when calculating holiday pay entitlement. If an employer fails to do so, a worker can bring a claim for unlawful deductions from wages in the Employment Tribunal.

A worker must bring such a tribunal claim within three months (that is, three months less one day) of the underpayment. However if there is a series of deductions, this time limit runs from the last deduction in that series. The time limit can be extended if the Tribunal considers that ‘it was not reasonably practicable’ to bring the claim within the three months.

Fulton and another v Bear Scotland

In the original case, the Claimants brought claims for unlawful deductions from wages against Bear Scotland, arguing that overtime and other similar payments had not been taken into account when calculating holiday pay. The Employment Tribunal found in favour of the Claimants. Bear Scotland then appealed to the EAT. One of the grounds was whether the underpayments claimed amounted to a ‘series of deductions’. The EAT (Mr Justice Langstaff)  held that a three month gap between deductions breaks any series of unlawful deductions. The claim was remitted back to the Employment Tribunal to decide which claims were brought in time, finding a majority were in fact out of time. The claimants then appealed to the EAT arguing that the rule on the three months gap was not binding, rather it was a presumption that could be rebutted with evidence. The appeal was dismissed and the EAT (Lady Wise) confirmed Mr Justice Langstaff’s decision, i.e. that a three month gap between deductions breaks any series of unlawful deductions unless it was not reasonably practicable to bring the claim within three months. Lady Wise was not able to depart from the previous EAT decision (unless in exceptional circumstances, none of which applied here) and therefore the second appeal should have been made to a higher court. Lady Wise was therefore bound by the decision in the earlier appeal.   

While this judgment clarifies how far back Claimants can go, allowing them to value their claim, ultimately it is good news for employers as it is likely to reduce the potential liability for holiday pay claims.     

It is likely that the three month rule will be revisited in the future by the Court of Appeal (Court of Session in Scotland) however until then, the Employment Tribunal will be bound by the three month rule.    

If you require any further advice on this, or any other Employment law matter, please contact the Chattertons’ Employment law team at your nearest office.