Holiday pay: Agnew II confirms the scale of potential historic liability in Northern Ireland

Why should I read this?

The latest judgment in the long-running Chief Constable of the Police Service of Northern Ireland v Agnew (“Agnew II”) litigation provides important guidance on the potential value of historic holiday pay claims in Northern Ireland.

Following the Supreme Court's 2023 decision that a gap of three months or more does not necessarily break a "series" of holiday pay deductions, the Northern Ireland Industrial Tribunal has now addressed a number of the important remedial questions left unresolved. Most significantly, it has concluded that, for eligible claimants in this public-sector litigation, claims can reach back almost 30 years.

The position remains materially different in Great Britain, where a two-year backstop generally limits how far back workers can recover in unlawful deduction claims presented since 1 July 2015. However, the validity of that backstop is currently being challenged and the introduction of state enforcement of holiday pay through the Fair Work Agency will further change the enforcement landscape.

This briefing considers the Northern Ireland Industrial Tribunal’s decision and compares this to the current position in Great Britain.

What do I need to know?

The original claims were brought in 2015 by thousands of police officers and civilian employees who had received basic pay while on holiday without regular overtime and allowances being reflected in their holiday pay.

In 2023, a Supreme Court decision (applicable to both Great Britain and Northern Ireland) established an important principle: a gap of three months or more between underpayments does not automatically break a series of deductions (see our briefing - The UK Supreme Court issues landmark decision on backdated holiday pay). Nor does an intervening correct payment necessarily break the series. What constitutes a "series" depends upon the factual relationship between the deductions.

The new Agnew II remedy judgment addresses what that means financially in Northern Ireland:

• Claims can reach back to 23 November 1996 in this litigation. Although the Northern Ireland Working Time Regulations did not take effect until 1998, the Directive should have been implemented by 23 November 1996. Because the respondents are public bodies, qualifying claimants can rely directly upon the Directive. That particular reasoning will not ordinarily allow private-sector claimants to reach back to 1996
• There is no equivalent Northern Ireland two-year backstop. Private-sector Northern Ireland employers therefore potentially face claims reaching back many years and, depending on the circumstances, potentially to the introduction of the Northern Ireland working time legislation in 1998, or the commencement of the worker's employment if later, assuming the procedural requirements for a series of deductions claim are satisfied
• No interest is payable on the historic underpayments. The Tribunal held that the remedy for workers who took holiday but were underpaid is the amount of the shortfall, rather than interest or an inflationary uplift. This is particularly significant given the exceptionally long period over which some claims may extend
• Loss must be established individually. Where historic overtime records are unavailable, the Tribunal rejected a universal "broad brush" assessment. Sampling and extrapolation can still be used as evidence, but its weight must be considered on a case-by-case basis
• There is no universal divisor. The appropriate method of translating overtime and allowances into holiday pay depends on the individual's working arrangements. The Tribunal therefore declined to prescribe a single calculation for the thousands of claims

The scale explains the significance of the decision. More than 7,000 claimants are now involved, with the value of the claims estimated by some commentators to be in the region of £30 to £40 million. The Tribunal has actively encouraged the parties to reach agreement rather than determine thousands of claims individually.

Given the value involved, it is possible that Agnew II may be appealed to the Court of Appeal in Northern Ireland.

How does Great Britain compare?

Issue	Northern Ireland	Great Britain
Series of deductions	A three-month gap between underpayments, or an intervening correct payment, does not automatically break a series of deductions. Whether deductions form a series depends on the circumstances and the factual link between them.	A three-month gap between underpayments, or an intervening correct payment, does not automatically break a series of deductions. Whether deductions form a series depends on the circumstances and the factual link between them.
Historic liability	No equivalent statutory two-year backstop. For most private-sector employers, exposure may potentially reach back to 1998, subject to the facts and limitation rules.	Generally limited to two years before the claim under the 2014 Regulations, although the validity of that backstop is currently subject to challenge.
1996 exposure	Potentially available where the Directive can be enforced directly against an emanation of the state, as in Agnew II.	Not a practical issue for most employers because of the two-year statutory backstop.
Security of the backstop	Not applicable.	Currently applicable, but its validity is being challenged following the first-instance Employment Tribunal decision in Afshar and others v Addison Lee Ltd.

Practical implications

For employers with Northern Ireland operations, Agnew II reinforces the need to treat historic holiday pay as a potentially material liability rather than simply a payroll-compliance issue. Employers should:

• audit whether holiday pay has historically included the components of "normal remuneration" required by law, particularly regular overtime, commission, allowances and relevant bonuses;
• identify how long any incorrect methodology was operated and the populations potentially affected
• assess how complete historic working-time, overtime and payroll records are, because Agnew II shows that evidential questions can become critical when liability stretches back many years;
• consider the exposure during corporate transactions and due diligence, including the robustness of warranties, indemnities and liability calculations; and
• consider whether an agreed methodology, sampling exercise or settlement strategy would be more proportionate than individual assessment where significant populations are affected

For Great Britain employers, the immediate position is more reassuring, but not a reason for inaction. The two-year backstop remains an important limitation on conventional unlawful deduction claims. However, Agnew makes it substantially more difficult to rely on gaps between deductions to break a series. Employers with known historic underpayments may therefore want to assess the extent of any potential historic exposure, particularly where a significant population is affected.

There is also some uncertainty over the continued validity of the two-year backstop. In Afshar and others v Addison Lee Ltd, an Employment Tribunal held that the Regulations introducing the two-year limit were unlawful because they were made outside the scope of the Government's regulation-making powers. As a first-instance decision, it is not binding on other tribunals, and the two-year backstop remains in place. However, the decision is being appealed (due to be heard in January 2027) and, if upheld, could significantly increase employers' exposure to historic holiday pay and other unlawful deduction claims.

Separately, the developing Fair Work Agency enforcement regime and the new record-keeping requirements increases the importance of getting holiday pay compliance right in Great Britain. The move towards state enforcement of statutory holiday pay from 2027 creates the potential for more proactive scrutiny of systemic underpayments across a workforce, rather than enforcement depending solely on individual workers identifying an underpayment and pursuing a claim. Employers should therefore review their holiday pay calculations and historic practices, address any identified areas of non-compliance and ensure that they maintain adequate records to demonstrate compliance.

Employers in Great Britain should therefore consider:

• reviewing current holiday pay calculations and identifying any potentially systemic underpayments
• ensuring that holiday and holiday pay records meet the new record-keeping requirements and are sufficiently robust to demonstrate compliance
• assessing the potential financial exposure where historic underpayments are identified, including the potential impact if the two-year backstop were ultimately found to be invalid; and
• monitoring the appeal in Afshar and others v Addison Lee Ltd and the development of the Fair Work Agency's approach to holiday pay enforcement

How we can help

Our teams across the UK can advise on the correct calculation of holiday pay and help employers identify, quantify and manage potential historic liabilities. This includes reviewing the treatment of overtime, commission and allowances, assessing the scope and value of potential underpayments, advising on remediation and claims strategies, and addressing holiday pay exposure in corporate transactions and due diligence.

We can also help employers review their holiday pay arrangements and record-keeping in preparation for the developing Fair Work Agency enforcement regime in Great Britain, including auditing existing holiday pay practices, identifying and addressing systemic underpayments and ensuring that record-keeping arrangements are capable of demonstrating compliance across the workforce.