In a ruling on the 4th of October, the Supreme Court of the United Kingdom has closed a significant legal loophole, potentially allowing hundreds of thousands of flexible workers in the UK to claim backdated holiday pay from their employers.
The decision follows a high-profile case in which over 3,700 police officers and civilian staff successfully claimed backdated holiday pay from their employer, the Police Service of Northern Ireland (PSNI), which had allegedly underpaid holiday pay dating back to 1998.
In 2019, the Court of Appeal upheld a tribunal’s decision that these workers were owed holiday pay, a decision that was later appealed by the PSNI but has now been dismissed by the Supreme Court.
The repercussions of this ruling are substantial, with estimates suggesting that the PSNI could face a financial burden of between £30 million to £40 million in backdated holiday pay claims. Notably, in Northern Ireland, claims can extend beyond the standard two-year limit applicable in the rest of the UK.
The ruling carries profound implications for workers in the umbrella and temporary employment sector. It stipulates that a gap of three months or more between underpayments of holiday pay does not break the chain of deductions.
Who can claim holiday pay?
Previously, a series of deductions could only be linked if there was no gap exceeding three months. This change means that more umbrella and temporary workers now have the opportunity to claim unreceived holiday pay from umbrella companies and recruitment agencies.
The impact of this decision is far-reaching, as it applies uniformly across the UK and Northern Ireland. Julia Kermode, CEO of PayePass, an umbrella company compliance expert, emphasised the potential significance of this ruling for the flexible working industry:
“This landmark judgment sends a very clear message to dubious umbrella companies and recruitment agencies who do not pay their workers holiday pay. These immoral operators are now at risk of claims for staggering sums of money which is legally owed to flexible workers.
“In simple terms, this case means that the 3-month window to claim underpayments is not enforceable, so unreceived holiday pay can be claimed back from employers dating back two years irrespective of whether they received it on and off. It could mean thousands to every temp and contractor who hasn’t received their holiday pay, and it could easily cost this industry billions.
“Whilst there are still currently legal loopholes allowing these companies to withhold holiday pay, they aren’t ethical – in fact, they’re completely immoral. Common sense has prevailed, and this Supreme Court ruling has closed one such loophole, shining the spotlight on holiday pay which, all too often, is withheld from workers who desperately need it.
“It’s shocking that profiteering through withholding holiday pay even goes on, and from our experience of auditing supply chains, we know that end-clients are usually totally unaware of it, even though it’s their money being redirected.
“But let’s not forget about all those who have missed out on vital income, and now have the opportunity to claim what is rightfully theirs. No doubt the legal eagles are already circling ready to support high-profile cases.”
This landmark ruling is expected to have far-reaching consequences, not only for flexible workers but also for the companies and agencies that employ them. It underscores the importance of upholding workers’ rights and ensuring fair compensation for all employees, regardless of their employment status.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.