Our November newsletter (http://www.scullytwiss.com/employment-appeal-tribunal-makes-important-decision-on-holiday-pay-and-overtime/) set out the latest position on overtime payments and holiday pay following the well-publicised case of Bear Scotland Ltd v Fulton – in summary that where workers were regularly paid overtime (even if non-guaranteed), this should be included in calculations of holiday pay. One of the headline concerns raised by employers was how far back could workers bring claims for underpaid holiday.

The most obvious claim that a worker who has been underpaid holiday could bring would be a claim for unlawful deductions from wages. Before Bear Scotland v Fulton, the generally understood position was that the worker had to bring the claim within 3 months of the last underpayment, but it was possible for the worker to claim for a series of underpayments, potentially going back for many years, depending on the circumstances. In Bear Scotland v Fulton, the court agreed that the worker had to bring the claim within 3 months of the last underpayment, but went further and decided that in the case of a series of underpayments, if there had been a break of more than 3 months between underpayments, this would break the series and the worker could not claim for any underpayments before this break.

As a result of this case and the media coverage it generated, the government set up a workforce and has now implemented new legislation; the Deduction from Wages (Limitation) Regulations 2014, which aims to lessen the impact on employers of the court’s decision in Bear Scotland Ltd v Fulton by limiting how far back claims for unlawful deductions from wages can be brought.

This legislation, which will apply from 1 July 2015, limits most claims for unlawful deductions from wages to 2 years before the date that the claim was presented to the court. The new legislation also provides that the Working Time Regulations 1998 do not confer a contractual right to paid leave. The aim of this clarification is to try to prevent workers from being able to bring a different type of claim – breach of contract – in relation to underpayments of holiday pay.

Whilst this is broadly good news for employers, there are some limitations:

1. The legislation will only take effect from 1^st July 2015 so if workers bring their claim before July 2015 they could try and claim back for a longer period.
2. The two year limitation period only applies to claims for unlawful deductions from wages so claimants may try to bring claims for historic holiday pay via a different claim, despite the government’s attempts to rule out claims for breach of contract.
3. As ever, the legislation is open to challenge/interpretation by the courts – we will have to see how case law develops on this issue.