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A cap on backdated holiday pay claims

20 January 2015

Following the Employment Appeal Tribunal’s decision in Bear Scotland v Fulton, the government has sought to limit the impact on businesses by introducing the Deduction from Wages (Limitation) Regulations 2014, which came into force on 8 January.

The new Regulations will affect all claims brought on or after 1 July 2015, and will limit claims for the unlawful deduction from wages to two years before the issuing of the ET1 claim form where such claims relates to any fees, bonus, commission, holiday pay or other emoluments arising out of the employment.There are some claims that are excluded from this limitation, such as statutory sick pay, statutory maternity, paternity, adoption and shared parental pay, guarantee payments, wages for time off due to trade union activities, and wages during any period of suspension on medical grounds.

The Regulations also exclude from an employee’s contract of employment the right to payment in respect of periods of leave.This has immediate effect from 8 January 2015 and prevents an employee from relying on a breach of contract claim in the civil courts (where the limitation period is six years) to recover any unpaid holiday pay.Employers should check the wording of their contracts of employment to ensure they do not give rise to any express contractual entitlement to paid holiday.

This is positive news for employers in the long term, as any ongoing failures that may arise, whether as a result of case law or the discovery of a mistake, will be limited to a two year period (provided it does not fall under one of the exclusions). In the short term, however, employees still have six months in which to issue their claims for backdated holiday pay, and employers should continue to review the way it pays holiday pay and calculate any potential liability to ensure it is prepared to deal with any questions that an employee may ask.