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A Tribunal ruling may end the two-year limit on backdated holiday pay claims, creating major risks for employers.
15 July 2025
Case Study
A two-year backstop on holiday pay claims could be near an end, meaning huge liability for some employers.
For those who have experience of holiday pay claims or who are interested in this niche area, you will know that the two-year backstop on holiday pay claims introduced in 2015 has always been waiting for a test case. Many commentators thought it would not withstand such a challenge, and we appear to have witnessed the first case to test it.
In Afshah & Others v Addison Lee, an Employment Tribunal has concluded that the regulations which prevent claimants being able to go back further than two years to recover underpayments are “ultra vires”. This essentially means it is unlawful, and the ramifications for some employers could be huge.
The Employment Rights Bill looks set to change the landscape of holiday pay claims, but, for now, workers have three months to bring a claim for non-payment or underpayment of holiday pay. Provided that this claim is in time, they can then claim for previous deductions/non-payment for the whole series. In effect, for as long as the problem has persisted. To combat this, the government introduced a two-year cap on claims via the Deductions from Wages (Limitation) Regulations over a decade ago.
More recently, the Supreme Court looked again at this area in Chief Constable of the NI Police v Agnew. However, that case was under NI law, which did not have the two-year cap. In that case, the Supreme Court effectively held there was no backstop and that a claimant did not need to show a connection between deductions or that the erroneous payments had to be within three months of one another. This rang some alarm bells within UK law, where the legality of the two-year backstop has always been queried.
The case of Addison Lee is now the first test within England, Scotland and Wales where the backstop applies and – as many expected – the Tribunal found that the UK government had exceeded its powers by introducing the two-year backstop, meaning claimants should be able to recover holiday pay going back many years. Theoretically, this could mean as far back as 1998 when the Working Time Regulations were introduced.
Case Study
Note that this is a first-level decision and therefore not binding on other Tribunals. It could also be appealed, and it will only be subsequent judgments that would be legally binding (and may, of course, be decided another way). For some, though, this has long been awaited, and only time will tell what happens next.
In view of the current government’s plans to set up a Fair Work Agency and give more powers in this area, it does seem the tide is turning. This is particularly relevant to employers who have decided to “wait and see” because the change would be enormously significant.
Remember that the Working Time Regulations have an often overlooked provision that allows workers to carry forward their untaken leave where their employer has not actively encouraged them to use it.
Following changes made early January 2024, the law is also now much more explicit about what must be included in holiday pay calculations, including things like overtime, commission and performance-related bonus in the four weeks’ statutory holiday pay calculation. (Contractual holiday pay over and above this can be calculated differently, depending on the contractual terms.) If the backstop is removed, then the risk level in this area will be significant.
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