Case Analysis: Afshar v Addison Lee — The Two-Year Cap on Holiday Pay Claims

Citation

Afshar & Others v Addison Lee Limited [2025] ET 3306435/2020 (February 2025)

Issue

Whether the Deduction from Wages (Limitation) Regulations 2014, which impose a two-year backstop on unlawful deduction from wages claims, are ultra vires (beyond the powers of the Secretary of State).

Background

The claimants were private hire drivers who brought claims including claims for underpaid holiday pay as unlawful deductions from wages. The main dispute concerned worker status, but the tribunal's decision on the two-year cap is of wider significance.

The Two-Year Cap

The 2014 Regulations were introduced to limit employer exposure following the initial wave of holiday pay litigation. They imposed a two-year backstop on unlawful deduction claims brought on or after 1 July 2015. The Regulations applied to all unlawful deduction claims — not just holiday pay — to avoid a challenge under the EU principle of equivalence.

The Tribunal's Decision

The tribunal held that the 2014 Regulations are ultra vires. The right not to suffer unlawful deductions from wages is a fundamental right enshrined in the Employment Rights Act 1996 (a primary Act of Parliament). Secondary legislation — such as the 2014 Regulations — can only limit such a right if primary legislation expressly permits it to do so. The Employment Rights Act does not expressly authorise the Secretary of State to impose a backstop on claims.

Significance

This is a first-instance Employment Tribunal decision. It is not binding on other tribunals or on the EAT. However:

• It is likely to be appealed, and the EAT and Court of Appeal will need to consider the issue.
• Even as a first-instance decision, it will encourage other claimants to argue that the two-year cap does not apply to their claims.
• If upheld, claims could potentially run back to 1998.

Interaction with Agnew

The decision must be read alongside the Supreme Court's decision in Agnew [2023], which held that a three-month gap between deductions does not automatically break the series. Together, these two decisions significantly increase the potential value of historic holiday pay claims.

What Should Employers Do?

1. Do not assume the two-year cap protects you. The Afshar decision means this assumption is no longer safe.
2. Audit your holiday pay calculations. Ensure overtime, commission, and bonuses are included for the first four weeks of leave.
3. Assess your historic exposure. If the cap is removed, what is your potential liability going back to 1998?
4. Consider proactive settlement of known underpayments, particularly for long-serving workers with high variable pay.

This case analysis is provided for general information only and does not constitute legal advice.