In the case of Fulton and another v Bear Scotland the Employment Appeal Tribunal (EAT) has dismissed the appeal of the claimants on the issue of the ‘three month gap rule’.
The claimants’ journey started with an unlawful deduction from wages claim in respect of holiday pay. The central issue was whether holiday pay calculations should include non-voluntary overtime and other payments. The case escalated to the EAT in 2014 where the claimants successfully argued that they should be paid ‘normal remuneration’ during leave, the EAT limited this to ‘EU leave’.
However, the employers were successful with regard to limitation and the ‘three month gap rule’. To explain the rule – unlawful deductions claims must (unless not reasonably practicable) be brought within three months of the underpayment or where there is a series of underpayments within three months of the latest underpayment. The EAT confirmed that providing there has been a three month gap in underpayment of holiday pay the chain of unlawful deductions will be broken. EU leave is deemed to be taken first, followed by UK leave and then contractual leave. Where UK leave and contractual leave is paid at the appropriate basic rate of pay, it is likely any chain of underpayments will be regularly broken, thus limiting the potential for any back pay. This element of the decision was welcomed by employers who were concerned that claims could go all the way back to 1998. The Government subsequently amended legislation to limit claims to two years’ back pay.
The case was sent back to the Tribunal to determine the facts necessary to apply the ruling. The Tribunal found a number of the claimants’ claims to be time-barred as more than three months had elapsed between successive underpayments. The claimants appealed.
The appeal was dismissed by the EAT. The EAT was not permitted to depart from its earlier decision as this can only happen in very limited circumstances. The claimants’ further argument that if the original EAT’s decision was binding, it provided a strong presumption rather than a binding rule that the series of deductions is broken by a three month gap was also rejected.
Employers will be relieved the three month gap rule remains for now. It is questionable whether the claimants could appeal this point any further considering they did not appeal the 2014 EAT decision. However, in light of the volume of holiday pay litigation currently before the Tribunals the three month gap rule may well be considered in the Court of Appeal in the future.
We are still awaiting news on British Gas v Lock which has been referred back to the Employment Tribunal, where we will hopefully receive some much needed guidance on how to calculate holiday pay. We will keep you updated.
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