Matthew Ramsey and Jason Galbraith-Marten KC discuss:

• working time and holiday pay; and
• the case of PSNI v Agnew and the issues it raises.

Transcription

Matthew Ramsey: Welcome to the October edition of the Macfarlanes HR podcast. I’m Matthew Ramsey, I’m the senior knowledge lawyer in the Employment team here and I’m joined this month by our very special guest who is Jason Galbraith-Marten KC. Jason needs very little introduction to anyone who has paid any attention at all to the employment law world over the last few years, he comes fresh from the Supreme Court where victorious once again having been victorious in the seminal Uber decision a little while ago, he is now back to his victorious ways in a case called Agnew against the Chief Constable of Northern Ireland which is all about working time and holiday pay. Hello Jason and thanks very much for being with us.

Jason Galbraith-Marten: Hi Matthew, thanks very much for inviting me along.

Matthew Ramsey: So I said that this was a Northern Ireland police case, why are we interested in it?

Jason Galbraith-Marten: Well, we are interested in it I think for two reasons, there’s an interesting point on the procedural rules attaching to claims brought under the working time regulations so of particular relevance to police officers in Northern Ireland because they are deemed to be workers for the purposes of their working time regulations but they are not workers for the purposes of the employment rights or that their equivalent of the Employment Rights Act and its obviously not just police officers that fall into that position, they may not be able to claim under the 1996 Act so there is that procedural provision that is very interesting but we’ll come back and say a bit more about that I’m sure but the other point and the one that I think most people in Great Britain have been talking about, certainly is that in Agnew, the Supreme Court has effectively overruled the decision of Mr Justice Langstaff in the Bear Scotland case to the effect that a three month gap between a series of deductions necessarily breaks that series and acts as a sort of backstop on how far back individuals can go. So the Supreme Court has said that is wrong, so those are the two main points that came out of it.

Matthew Ramsey: So let's just sort of unpack those and perhaps provide listeners with a tiny bit more background. So my recollection of holiday pay is that the ECJ over many years has commanded employers to pay what they term normal remuneration which isn’t necessarily the same as basic salary so any period of annual paid holiday and as you say that the Bear Scotland decision made the calculation of how quickly somebody needed to act to bring claims are very complicated. Can you just remind me that there are two different ways, aren’t there, of litigating holiday pay underpayments or shortfalls?

Jason Galbraith-Marten: Yes there are. So you are quite right, see the EU the Williams case and the Lock case that people may well have heard of have been applied in the UK ironically enough by Mr Justice Langstaff in the bit Bear Scotland at the Supreme Court agreed with have been applied in the UK to meet for the purposes EU leave, that’s the four week period of leave mandated by the working time directive you must receive your normal remuneration and that will generally include compulsory and regularly worked overtime commission payments of that kind whereas under the domestic law it had previously been held that an employer could get away with paying only basic pay for holiday pay and indeed for the 1.6 weeks of additional pay there is no legal requirement to take into account overtime and commission, you can still pay just basic pay. Whereas that four week period of EU leave it has got to be normal pay and of course under the working time regulations themselves there is a mechanism to bring a claim so where you are not paid in accordance with your entitlement you can bring a claim under the working time regulations; but it has also been established that if I failed to pay you the amount of holiday pay to which you are entitled. I am making an unlawful deduction from your pay, so in parallel with your right to bring a claim under the working time regulations; you can bring a claim under the unlawful deduction provisions of the Employment Rights Order in Northern Ireland or the Employment Rights Act in Great Britain. It’s a breach of contract, you could bring it in the Civil Courts but obviously it is much cheaper and simpler and quicker to bring it as an unlawful deduction claim in the Employment Tribunal.

Matthew Ramsey: Ok so there are three different potential avenues to have your day in court and presumably each of those carries with its own bespoke timing arrangement.

Jason Galbraith-Marten: Well the significant difference between them is that whilst both are subject to a usual three month limitation period so you have got to present a claim within three months of the payment that contained the underpayment of holiday pay, under the unlawful deduction provisions of the Employment Rights Act there is the additional ability to bring a claim in respect of a series of deductions so if there is a series of deductions you can go back further than just three months and in fact in Great Britain you can go back as long as two years. There is a two year backstop so up to two years’ worth of back payments. Interestingly in Northern Ireland they don’t have the two year backstop so their unlawful deduction provision does not contain the section 4A that was introduced in, I think it was 2014 now to the Employment Rights Act so one of the interesting features of the Agnew case is that the successful claimants in that case can claim potentially as far back as 1998 when the working time regulations were introduced then. There is actually a potential to go back to 1996 because UK government was required to implement the working time directive by 1996 and didn’t, it only implemented it in 1998 so there is an argument yet to be had about whether they can go back as far as 1996. So that’s under the Employment Rights Act provision you can bring a series of deduction claims, you can’t do that under the working time regulations, you can only effectively go back three months.

Matthew Ramsey: Got it, ok so that brings us neatly to the first point you made a moment ago when you introduced the Agnew decision and this point about EU equivalents and reading words in to enable people who could bring one of those types of claim but couldn’t bring the other, I got very lost when I was reading the judgments, you are cleverer than I am, so can you explain the principle of equivalence in a short tidy way.

Jason Galbraith-Marten: I can’t claim all the credit for it because it was in fact the decision of the Northern Ireland Courts of Appeal so the Supreme Courts upheld the decision of the Northern Ireland Supreme Court, it wasn’t my invention but the principle of equivalence means that the procedural rules attaching to the exercise of a right that derives from EU law cannot be any less favourable than the procedural conditions attaching to an equivalent domestic right and effectively what the Supreme Court held was that the right to bring a claim in respect of other paid holiday pay under the working time regulations was equivalent to the right to claim for unlawful deductions under the Employment Rights Act and therefore the procedural rules attaching to the working time claim had to be no less favourable procedure rules attaching to the unlawful deduction claim so that meant you had to import into the working time regulations the right to bring a claim in respect of a series of deductions. 

Matthew Ramsey: Ok, and that was important here because the claims in this case I appreciate there some civilian stuff but most of the claimants were police officers who weren’t employees or workers for the purposes of the Employment Rights Order. 

Jason Galbraith-Marten: I mean it is interesting and I think this is one of the points that might have influenced the Justices so the claimants are both police officers and civilian employees of the police service of Northern Ireland, the civilian employees are of course entitled to bring claims in respect of a series of deductions under the Employment Rights Act equivalent in Northern Ireland and it just seemed manifestly unfair that you have got individuals often might be working side by side obviously not doing exactly the same job, often working side by side and the respondents accepted that this cohort could go back potentially as far as 1998 relying on the series of deductions; but said the police officers could and I think that in fairness may well have influenced.

Matthew Ramsey: That’s a pretty unattractive position to start from isn’t it as an employer.

Jason Galbraith-Marten: It is yes. Some are going to get it and some aren’t; and of course the other thing that is worth pointing out that those that worked for the police service in Northern Ireland for many years have worked significant amounts of overtime probably obvious reasons and so these are very valuable claims to them.

Matthew Ramsey: Understood, and so the meat of the decision from a general sort of GB UK wide perspective is this question of what counts as a series? And you know as a sort of a general rule of English you would expect if I make a payment to my builder once every six months isn’t that still a series even though there are long gaps between it or why was this three month period fixed on by the Bear Scotland decision?

Jason Galbraith-Marten: So this is the bit of the case, or a bit of the case that the Supreme Court upheld, this is a bit of the Bear Scotland case that the Supreme Court upheld and you are quite right to say that whether payments are or form part of the series it’s largely a question of fact in each case, is there sufficient similarity between them both in terms of the nature of the payments and potentially in terms of the temporal element, how far apart they are spaced to mean that they can form part of a series and effectively what the Supreme Court has said there is no bright line as far as that is concerned, each case will very much depend on its own merits. You might have an individual for example who is paid annual commission or an annual bonus and there is a deduction made from the bonus every year, so the gap is 12 months but nonetheless it can form part of a series. Is there an underlying advice is that rather nice phrase that the Supreme Court came up with to describe or explain why there has been an unlawful deduction and underpayment. Why did Mr Justice Langstaff say that a period of three months would break the gap? Well, he relied on the fact that there’s a three month limitation period for the presentation of a claim so he said obviously if three months go by generally speaking you lose your right to claim and it would be a little bit odd if that right revived simply because there is another deduction that occurs more than three months later.

Matthew Ramsey: But isn’t that the whole point of the series concept?

Jason Galbraith-Marten: Well that’s exactly what the Supreme Court said, the Supreme Court said that the series concept is to deal with precisely that situation, and it pointed out how unfair and impractical it could be to require employees to present multiple claims just to avoid the passage of three months; and you know so if you take your holidays at Christmas and then you skip Easter and then take another holiday in the summer you should be able to present a claim in respect of underpayment for both of those periods of holiday without having to present a claim after Christmas, a claim after summer and do that every year. I was going to say one of the things it relied on is the fact that employees are often reluctant to litigate against their employer again for wholly obvious reasons. There might come a point where you say enough is enough and you finally want to bring a claim but entirely understandable that you might not want to do so in your first year of employment or second year of employment or whilst you are still there and hoping to get promotion etc and again one of the points that the Supreme Court made in Agnew reiterating what had been said in Uber is you have got to bear in mind that the purpose behind this legislation it is to protect often vulnerable employees and the most vulnerable are the ones that are least likely to pipe up and say I think I’m owed more money.

Matthew Ramsey: Yes, that must be right as a sort of a general rule and the other mischief I guess that certainly some slightly dubious employers have contemplated over the years is trying to sort of gain the system by making one accurate holiday payment every now and again to try to break the concept of a series is that a runnable solution?

Jason Galbraith-Marten: I mean it’s not just those, I’m sure there are some that are trying to gain the system but not everyone will be trying to gain the system, remember right at the start we talked about the four week period of EU leave and the 1.6 weeks of additional leave and you can pay lawfully basic pay not including overtime etc in respect of 1.6 weeks so if any year someone takes 5.6 weeks of holiday it would necessarily follow that if they were only paid basic pay throughout they had been unpaid for four weeks of that holiday but at least 1.6 weeks of it would have been a lawful payment. One of the issues in the case was does it matter in which order you take your EU and your additional leave, I think both parties here were trying to manipulate to see how we could come up with an answer that was most favourable to us. It obviously suited the other side to say well you must take all your EU leave in one go and then you take your additional leave at the end and that effectively breaks the chain; so that the next time you take EU leave you can’t link it to the former block of four weeks and the Supreme Court was unimpressed by that so it held that again it’s largely a question of fact. You need to look at the underlying reason why there has been an underpayment and in this case the reason why there has been underpayment was because of a failure to properly calculate the amounts due for EU leave. The fact that you were lawfully paid in respect of your additional leave was neither here nor there, it couldn’t break the chain because the underlying advice didn’t apply to it, it wasn’t EU leave. So, it follows that simply making a lawful payment will not necessarily break the chain but one interesting thing that came out of that and it actually links to what the Conservative government has recently put out a consultation on is whether we should continue to distinguish between EU leave and additional leave. It is proposed actually doing away with that two-tier approach and just having a single description in respect of leave and the Supreme Court in Agnew did say, that leave should be treated as a single composite pot so employees nor employers are required to identify whenever someone takes their leave whether they are taking EU leave or they are taking additional leave, it all comes out of a single pot and that makes a lot of practical sense but it also raises perhaps more questions than it answers because of course as the law currently stands you do have to pay differently in respect of EU leave and additional leave. It’s down to the employer to know what they are supposed to pay and in fact someone has already asked me the question, if it’s a composite pot of holiday can we work out the composite rate of payment. Now putting aside the administrative difficulties associated with that I think there is a superficial attractiveness to it, yes, we can do away with having to distinguish between different types of holiday but I think the real problem is a composite pot is effectively an average of the two rates of pay weighted slightly towards EU leave obviously because it is a longer period; but if its an average rate of pay its going to be less than the rate required for EU leave so if someone does only take four weeks leave a year or even someone who takes the first two weeks of their leave if they are paid at the composite rate then might turn round and say well hang on that’s my EU leave thank you very much I want it paid at the higher rate you have underpaid me by only paying at the composite rate; so as I say it potentially raises more questions than it answers on that point.  

Matthew Ramsey: Does that concept of a composite pot apply to those employees who are lucky enough to have a contractual element on top of the statutory the two different sections of such statutory leave.

Jason Galbraith-Marten: So I think it probably does, I mean interestingly police officers in Northern Ireland not civilian employees but police officers also get a couple of extra days contractual leave, there wasn’t any discussion about that in the case, it didn’t feature but we effectively treated it the same as the additional leave so when we were having arguments for example about whether they were being properly paid in respect of additional leave I think it was implicit in that, that the police and I were arguing that the contractual leave paid at base pay only was also a lawful payment and was another way in which the series might be broken; so although it’s not expressly dealt with I think by implication the same argument would apply too.

Matthew Ramsey: Because most employment contracts as far as I can gather just say you are entitled to 30 days holiday let’s say per year and they don’t distinguish on the face of the drafting between the EU element, the other UK statutory element and the contractual element and so I guess if you don’t spell it out in the contract then presumably should an employer assume that all that leave should be paid taking into account overtime and commission and other elements.

Jason Galbraith-Marten: Well, so one of the government’s questions in the consultation is if we do have just a single type of leave should it all be paid at the higher rate or now that they can should it all be paid at the lower rate, obviously now we are no longer in the EU and post-January next year they would be entitled to depart from EU law if they chose to so there is always a possibility that the government will make that decision for us by saying it ought to be at the higher rate or it can all be at the lower rate but presently and of course largely to say that will be the consultation will close at a certain point and you will have to formulate proposals and then they will have to think about whether they can get them through before the next general election so who knows what will happen on that front but back to the question you asked what’s an employer to do? I think this is a really difficult question, because as the law currently stands it does only apply to employees who are being paid commission who are working either compulsory or regular overtime. It won’t apply I’m sure to many employees but for those to whom this does apply employers are required legally required to pay at the higher rate of normal pay in respect of four weeks and can if they choose to pay at the lower rate for the 1.6. They don’t have a choice about the higher rate as the law currently stands so they could decide to pay for all leave at the higher rate but they can’t currently decide to pay for all of it at the lower rate. 

Matthew Ramsey: I was looking at another bit of drafting a couple of weeks ago where the contract tried to set out the order in which leave was taken to sort of mirror that sequential approach that Mr Justice Langstaff adopted. Do you think that’s viable any longer?

Jason Galbraith-Marten: There was no point about that taken in the Supreme Court because it didn’t apply to the conditions of employment that we were concerned with. I have to say that I think you must be free to contract on that basis so the composite pot argument I think only works because absent of contractual terms of that effect it is difficult to distinguish between what might be EU leave and what might be additional leave but if the contract in an effective way does distinguish between the two and it could for example say the first four weeks are necessarily EU leave or it might say all of your holidays are EU leave apart from the bank holidays. Your bank holidays are additional leave, remember eight days were originally introduced by the Labour government to reflect the fact that employers were taking bank holidays out of a period of four weeks leave so it could do something like that to try and make it clear and if does so then I think we can lose the composite pot argument. So I think that’s a default position composite pot where the contract doesn’t sufficiently distinguish between.

Matthew Ramsey: Interesting. So you mentioned right at the beginning that the right under the Employment Rights Act from the Rights Order in Northern Ireland was to recover a maximum of two years of underpayment, I remember when that was introduced and lots of people were up in arms about the idea that there should be any limit on recovery and as you said it doesn’t apply in Northern Ireland anyway. Is that limit here to stay, I know we have talked before about it being open to challenge?

Jason Galbraith-Marten: You probably remember that at the time that two year limit was introduced it was roughly the time that Bear Scotland came out; and thinking at the time was that if employers were going to face claims for underpayments of holiday pay that were unlimited it might bankrupt many employers, this was going to be a huge cost to business; and it was very much felt at the time that Mr Justice Langstaff introducing that three month break was a sort of judicial way of limiting that potential scenario and the government had a go too by introducing the two year backstop so both of them concerns to achieve much the same sort of objective certainly that’s what people were saying at the time. One quick point you asked me about this when we spoke a while ago which is that the effect of the decision of the Supreme Court is not to allow police officers to bring claims under the Employers Right Act they still bring their claims under the working time regulations but you must import into the working time regulations the more favourable series of deductions provision from the Employment Rights Order the Employment Rights Act and you raised an interesting question, okay so they can now bring a claim in respect of a series of deductions under the working time regulations, that two year limitation doesn’t appear in the working time regulations, so does that mean everyone can simply bring their claims under the working time regulations and effectively side-step the two year limitation? Brilliant though that is, I think that’s unlikely to happen because the principle of equivalence makes it clear that the procedural rules in respect of an EU derived right can be no less favourable than an equivalent domestic right but EU law does not require you to introduce your most favourable rules in relation to EU derived rights so I think that if anyone brought a claim under the working time regulations seeking to rely on Agnew they’d be met with an argument, well yes you can read in the bit of the Employment Rights Act that allows you to claim in respect of the series but you’ve also got to read in the bit that says you can’t go back further than two years. So I don’t think the side-stepping works. Is the two year limitation period itself vulnerable to challenge? People have been saying this ever since it came in but here we are nearly a decade later and no challenge that I’m aware of has been brought, certainly not a successful challenge. But there are rumblings, aren’t there, afoot. There are various ways in which you can challenge it. I think under EU law it could be said that if you limit someone to a period of two years you are artificially cutting off their loss and therefore you’re depriving them of an effective remedy. You might remember that, remember Mrs Marshall I think brought the claim Marshall v Southampton because she was only allowed to go back two years in respect of an equal pay claim; and the European Court held that that artificial limit of two years not applying to anything else was contrary to EU law so there’s an attractive similarity to a challenge based on EU law. I think the reality is you’re not going to be able to bring that challenge after 1 January next year; or you may not be able to bring that challenge after 1 January next year so I don’t know whether that one will run. But I’ve seen a couple of other quite novel and interesting arguments being raised. One is that your accrued right to holiday pay is a property right and therefore to deprive you of the right to go back as far as you’ve suffered loss would be an unlawful interference with your rights enshrined by the first article to the first protocol to the European Convention on Human Rights. Someone’s running that point against me, I have to say I ran that same point in Agnew so if I hadn’t have won on the principle of equivalence I was running exactly that same point but the Supreme Court didn’t need to hear from me on that point because they were in our favour on the principle of equivalence. So I think there is legs in that argument and of course because it’s European Convention of Human Rights it’s not EU law and if people …

Matthew Ramsey: Yes

Jason Galbraith-Marten: Not lawyers of course but those who are trained often think that because we’ve left the EU we can’t rely on European Convention law anymore but of course they’re completely different. So that would run whatever happens in relation to retained EU law.

Matthew Ramsey: Yeah. So I guess then the takeaway for most listeners then would be that for the moment the two year limit on recovery survives and caps liability, breaks in a series, doesn’t necessarily mean that it isn’t a series.

Jason Galbraith-Marten: Exactly.

Matthew Ramsey: And it’s still hard to decide precisely which day, what sort of leave each day’s holiday happens to be.

Jason Galbraith-Marten: Yes that knotty problem hasn’t gone away, it might do following the consultation exercise. Yeah I think that’s a pretty fair summary. I think those that are sort of acting for employers shouldn’t be too disheartened by this because you quite rightly pointed out that the decision of the Supreme Court means that a gap of three months doesn’t necessarily break a series but it doesn’t rule out the possibility that a break of three months or less might break a series because it’s now very much a question of fact. What is it you’re complaining about, what’s the underlying descriptor or explanation said to give rise to a series? And it may well be for example, that if someone is short-changed on their commission on a fairly regular basis but then complains about a different sort of incentive payment and brings a complaint within three months of the non-payment of that incentive or the shortfall in that incentive payment you could say, ah yes but that’s a very different payment from the bonus or the commission payments you were getting and therefore it’s not a series. So it’s not all bad news for employers.

Matthew Ramsey: I can feel a lot of interesting emails in which I am required to look at underlying vice.

Jason Galbraith-Marten: Underlying vice, yes.

Matthew Ramsey: I should probably tell my IT department to allow vice through the firewall.

Jason Galbraith-Marten: Be careful what you type into the search engine.

Matthew Ramsey: Absolutely smashing, well on that light-hearted note Jason it just remains for me to say a massive thank you for your very wise thoughts on this interesting case.

Jason Galbraith-Marten: Great pleasure, thanks for inviting me along.

Matthew Ramsey: Well that’s it for this month. We will return in November. Many thanks for listening and if you need anything in relation to holiday pay or anything else Jason and my details will appear in the episode description. Many thanks.