In November 2014, we saw the decision in the Bear Scotland case which said that overtime and bonuses, if they are pay that is “normally received”, should be taken into account in calculating the amount of statutory holiday pay. This decision raised concerns about the potential liability of employers for underpaid holiday stretching back over many years, as it would be possible to bring claims for underpaid holiday as an unlawful deduction for a wages claim under the Employment Rights Act 1996 (ERA).
The Government has acted quickly and on 8 January 2015 brought into effect the Deduction from Wages (Limitation) Regulations 2014 (the “Regulations”). The Regulations amend the ERA to introduce a maximum two year backstop to most unlawful deduction of wages claims covering holiday pay relating to overtime, commission, bonuses and some other fee arrangements. This backstop will apply to claims presented after 1 July 2015. It will not affect deduction of wages claims for other types of remuneration, for example statutory maternity pay, statutory sick pay etc.
The Regulations also confirmed that the Working Time Regulations do not confer a contractual right to paid leave. This is to prevent claims for underpaid holiday being brought as breach of contract claims. Otherwise employees might have had claims for sick pay going back to 1998.
Deduction from Wages (Limitation) Regulations 2014