Following the decision in Bear Scotland, the Regulations were introduced to impose a two year backstop period on most unlawful deduction from wages claims, including (but not limited to) claims for holiday pay.
For the sake of clarity, “wages” is defined as including commission, bonuses, fees, holiday pay and other emoluments, whether payable under a worker's contract of employment or otherwise.
It is hoped that the introduction of the Regulations will soften the blow for employers in the aftermath of the ruling given in Bear Scotland.
The two year backstop period as referred to above will apply to any unlawful deduction from wages claims made on or after 1st July 2015. However, whether or not the Regulations will in fact provide any “Saving Grace” for the employer remains to be seen and no doubt will very much depend on the employee making the claim (with the more “switched on” employee making a claim before 1st July 2015).
In addition to the introduction of the two year backstop date, the Regulations also made an amendment to Regulation 16 of The Working Time Regulations 1998 to the effect that there is now no contractual right to paid leave. This amendment was introduced with the view to prevent breach of contract claims being made in the civil courts for unpaid holiday pay, such claims only being able to be made under statute ie. as an Unlawful Deductions from Wages claim under the Employment Rights Act 1996 or under regulation 30 of The Working Time Regulations 1998.
As you may be aware and for the avoidance of doubt, in respect of contractual claims, a 6 year limitation period applies. Basically, as of 1st July 2015 what employers do not want is for an employee to make an unlawful deduction from wages claim in the Employment Tribunal (that claim being limited to a 2 year backstop period) and to then make a “contractual” claim in the civil courts for any “back” pay in excess of 2 years. The Working Time Regulations were therefore amended to prevent this from happening.
You should note that there will be a break in the chain of any series of deductions where a period of more than 3 months has elapsed between the deductions. This is a complicated concept to get to grips with, but what this basically means is that where an underpayment occurs more than three months before a complaint is made to the tribunal, it will only fall within the tribunal's jurisdiction if the underpayment forms part of a "series of deductions" with the last deduction in the series having to have occurred within 3 months of the complaint being made.
I therefore cannot over emphasise the importance of ensuring that your holiday pay calculations are correct going forward as the sooner you do this, the sooner you will break the chain of deductions and limit your liability for paying back pay.
Reviewing your overtime arrangements and holiday pay arrangements in the post Bear Scotland era is crucial and so if you have an overtime system or employees who work variable hours and you need help calculating their holiday pay going forward, please let me know and we can discuss in further detail.
Alternatively, depending on how much interest is received we are considering presenting a seminar on this highly topical issue in the forthcoming months - if you would be interested in attending please let us know.
