Different types of allowance could be grouped together in holiday pay claim

Background

It is possible to bring a claim for unpaid holiday as an unlawful deductions from wages claim under the Employment Rights Act 1996 (Act). The Act permits claimants to claim for a "series of deductions". In other words, claimants can link a series of underpayments into one claim. The claim must be brought within three months of the last deduction in the series and up to two years' worth of underpayments can be recovered.

Before last year's Supreme Court judgment in the case of Chief Constable of the Police Service of Northern Ireland and anor v Agnew, previous case law held that if there was a gap of more than three months between deductions, the "series" would be broken (three-month rule). The three-month rule would prevent a claimant going further back in time in their claim, in order to recover earlier underpayments. The three-month rule was overturned by the Supreme Court in Agnew. The EAT has now followed Agnew in the case of British Airways plc v Mello and others.

First instance decision

In this case, the claimants were BA cabin crew. They were paid a basic salary, and received various allowances on top of this. The issue in the claim was whether those allowances should be included in holiday pay calculations. Importantly, the Tribunal heard the claim before the judgment in Agnew was handed down. The Tribunal found that a number of allowances (including meal allowances) should have been included in holiday pay calculations. However, it found that the 'series' had been broken by a gap of more than three months between payments of each distinct allowance. The Tribunal also found that BA had designated the first period of leave taken in each leave year as statutory leave.

BA appealed, arguing that meal allowances should not have been included in the holiday pay calculations. The claimants cross-appealed, including in respect of whether there was a 'series' of deductions, in light of Agnew.

EAT decision

The EAT has allowed both the appeal and the cross-appeal. All payments intrinsically linked to the performance of duties are to be included in statutory holiday pay calculations. Any payments to cover ancillary or occasional costs need not be included. The points to note are set out below.

• The Tribunal had failed to consider whether the meal allowances were expenses payments, made genuinely to cover costs payments linked to performance. This requires a detailed analysis due to the particular systems in place at BA, which operates a generous flat rate meal allowance for cabin crew. The issue has been remitted.
• The Tribunal's findings in respect of whether there was a 'series' of deductions could not stand in light of In addition, the Tribunal should not have considered the different types of allowances as forming their own distinct series. The Tribunal should have concluded that there was sufficient similarity between the deductions so that they formed part of the same series. As it has been established that there is no three-month rule, the question of whether the temporal gap between two deductions is sufficient to break the series has been remitted to the Tribunal for determination.
• Established case law says that the first four weeks of statutory holiday is to be paid at the rate of 'normal remuneration', and that the remaining 1.6 weeks can be paid at the rate of 'basic pay' only. Contractual leave can be paid at a different rate again. This gives rise to the question of what type of leave is taken when. In this case, there was no statutory ability to designate distinct tranches of leave as statutory leave. There was nothing to stop this designation being made under the contract, but the contract did not contain such a power. The whole of the claimants' holiday allowance was therefore derived from one 'composite pot'.

Learning points

This case is a useful demonstration of the impact of the Agnew decision on the removal of the three-month rule. It will now be for the Tribunal to determine whether the relevant allowances are sufficiently linked so as to form a series for holiday pay purposes, in the absence of the three-month rule.

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