In Fulton & Brewer v Bear Scotland, the Employment Appeal Tribunal (EAT) considered what would break the chain of back payments that can be claimed as holiday pay in an unlawful deduction from wages claim. Employees must be paid their ‘normal remuneration’ for a minimum of 20 days’ annual leave per year. ‘Normal remuneration’ should include full pay, overtime, allowances and commission. This can be difficult for employers to assess accurately, particularly if an employee works irregular hours or often works overtime. The majority of recent cases relate to employers having historically miscalculated the amount of holiday pay, rather than deliberate non-payment. This case related to underpayment due to a miscalculation of overtime and travel-related allowances.

In good news for employers, the EAT confirmed that, where there is a gap of more than three months between underpayments, this breaks the chain and the employee cannot bring a claim for any underpayments before the gap.

Previously, it was understood that although an employee must bring a claim within three months of the date of the last underpayment, he or she would be able to claim for underpayments going back over a period of two years. This could leave the employer with a hefty bill.

In this decision, the EAT was just asked to look at when the series of underpayments would be broken. An earlier EAT decision in this case held that a gap of more than three months would break the series of underpayments and the employee would not be able to claim for any underpayments prior to the break. This was appealed and, in this case, the EAT confirmed that it was the correct analysis.

The EAT stated that the rule is that any gap between underpayments of more than three months will break the chain, unless it was ‘not reasonably practicable’ for the employee to bring the claim without the break. The EAT gave little guidance as to what would constitute ‘not reasonably practicable’ but was clear that it would depend on the facts of each case.

This is a welcome decision for employers and could significantly reduce the potential liability in this type of claim.