As promised in Rachel's post last week, here are some further thoughts on the Deduction from Wages (Limitation) Regulations 2014 ("The Regulations").
By way of reminder, the Regulations:
1. limit holiday pay claims presented on or after 1 July 2015 to two years prior to the date of the claim; and
2. prevent contract claims for holiday pay being brought under the Working Time Regulations 1998.
These changes are significant because employees who believe that they have been underpaid can now only claim deductions stretching back for the previous two years. The Regulations are intended to protect business from the potentially damaging impact of large backdated claims and provide some clarity for employers, in an area which can be confusing to say the least.
Prior to the Regulations coming into force, claims for holiday pay could stretch back six years before the date of the claim, or perhaps even as far back as 1998 (i.e. when the Working Time Regulations came into force). However, realistically it could be extremely difficult for most employees to establish large historical claims and these were perhaps more of a risk in theory, than in practice.
How does this impact other unlawful deductions from wages claims?
Interestingly, the two year cap applies to most unlawful deductions from wages claims, not just holiday pay. Wages in this context include "any fee, bonus, commission, holiday pay or other emolument referable to employment whether payable under his contract or otherwise". However claims for Statutory Sick Pay, Statutory Maternity, Adoption, Paternity and Shared Parental Pay (amongst a number of other statutory payments) will not be affected by the new two year limit. In theory, the Regulations could limit claims for underpayments of the National Minimum Wage, but the Government has acknowledged that there are other ways of enforcing this right, such as through HMRC.
Claims under the Working Time Regulations
The clarification given on contractual claims under the Working Time Regulations should be welcomed, as it had previously been suggested that a worker could make a claim for breach of contract for holiday pay, with a six year limitation period as opposed to two. The Regulations effectively limit a worker's ability to bring retrospective holiday pay claims through the back door via breach of contract claims in the civil courts. But it is still possible for a right to be conferred by the contract itself, either expressly or impliedly (for example, arising from a collective agreement that has been incorporated into a contract). Following the Regulations, it is clear that employers should be wary of inadvertently creating such contractual entitlements and check the provisions of existing contracts to see what the contractual rights are.
What does this mean for employers?
The Regulations are undoubtedly welcome news to employers and provide an additional safeguard against the potential risks (and expense) posed by holiday pay litigation. In addition, the new Regulations should help employers currently negotiating holiday pay issues with employees in making it easier to manage employee expectations and ultimately reach agreement.
But strictly speaking, are the new statutory provisions really necessary? The Bear Scotland judgment (discussed in further detail here) already limits the scope to make substantial retrospective claims for underpaid holiday as a gap of three months or more between deductions will break a series. On balance, it seems that the two year cap will only make a real difference if there are a long series of deductions, unbroken by any gaps.