Holiday pay for part-year and irregular employees – The Supreme Court publishes its judgment

Background

Mrs Brazel was a music teacher who visited a school run by The Harpur Trust (the Trust) to provide lessons to pupils. She was employed on a permanent contract and was paid an agreed hourly rate for the hours she had worked in the previous month. She only attended the school when she was required to provide lessons, so she had no set number of working hours, and her hours were dependent on how many pupils were learning to play an instrument that term. The Trust paid Mrs Brazel holiday by calculating Mrs Brazel’s earnings paying her 12.07% of those earnings (as recommended by ACAS at the time). 

Mrs Brazel argued that the method of calculation used by the Trust meant that she was receiving lower holiday pay than was permitted by the Working Time Regulations (WTR). She argued that instead holiday pay should be calculated by working out her average weekly pay for the 12 weeks before the holiday (now 52-week reference period would have to be used) and multiplying it by 5.6 (the maximum amount of holiday anyone is entitled to under statue).

The Trust argued that instead, holidays should be pro-rated as Mrs Brazel worked fewer weeks and hours than the standard working year. Using Mrs Brazel’s calculations would mean that she would be paid proportionally more in respect of annual leave than employees who worked full time. The Trust gave the following example, in the Court of Appeal proceedings, showing how disproportionate Mrs Brazel’s method of calculating holiday pay could be:

‘[Think about a] school cricket coach, who would only work for one term…for which he earned, say, £1,000, and who would then be entitled to 5.6 weeks annual leave, for which they would receive £5,600 [during his annual leave].’

Judgment

Mrs Brazel brought a claim before the Employment Tribunal for unlawful deductions from her wages by underpayment of holiday pay.

The Employment Tribunal dismissed her claim but the Employment Appeal Tribunal allowed her appeal holding that the statutory regime (under the WTR) required the use of the calculation put forward by Mrs Brazel. Harpur Trust appealed to the Court of Appeal, but their appeal was dismissed. The case was therefore further appealed to the Supreme Court, but the appeal was again dismissed.

The Supreme Court has confirmed that:

• The case concerns workers who work for varying hours during only certain weeks of the year but have a continuing contract throughout that year (referred to in the judgment as ‘part-year workers’).
• The amount of leave to which a part-year worker under a permanent contract is entitled is not required to be, and under domestic law must not be, pro-rated to be proportional to that of a full-time worker.
• A slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme which the Harpur Trust’s alternative methods require. 

Our comment

The Supreme Court judgment confirms, as expected, that the 12.07% accrual method to calculate both holiday and holiday pay that many employers use for workers and employees on part-year and zero-hours contracts is inconsistent with the WTR. The ruling instead confirms the following:

• For part-time employees who have normal weekly working hours, the judgement makes no difference as their 5.6 weeks’ holiday will continue to reflect their normal working hours within a week.
• As the case held that holiday could no longer be pro-rated for permanent zero-hours or part-year employees, that means that the 12.07% method of calculating holiday pay is therefore no longer legally compliant for these groups of employees.
• Zero-hours and part-year employees on permanent contracts have an automatic right to 5.6 weeks holiday and therefore 28 days holiday regardless of the amount of time they work.
• Holiday pay for zero-hours and part-year employees who take their 28 days of leave needs to be calculated based on their average weekly remuneration in the 52 weeks preceding the holiday (excluding any non-working weeks) – using their contractual hourly rate of pay will not be compliant with the law.
• Whilst the judgment does not directly comment on zero-hours workers treated as employees only for the purposes of each assignment they undertake, the 12.07% accrual approach may still be lawful for them when set up appropriately.

This decision will have significant cost implications for employers who engage zero-hours and part-year employees on a permanent basis and, therefore, we would strongly recommend that clients urgently review their holiday-pay arrangements.

How can we help you?

• We have prepared a detailed and comprehensive toolkit on calculating holiday and holiday pay in light of the decision – it provides a full explanation of the decision in practical terms and gives real-life examples to demonstrate its implications. To purchase the toolkit please contact regena.hodgson@anthonycollins.com.
• We can assist with any specific queries that you may have – we can offer specialist sector-specific advice on the ramifications of this judgement. We would in particular urge clients in the social care, education and housing sectors to review your practices.
• We can help you audit your working practices if you engage zero-hours and part-year employees on a permanent basis and are concerned about the impact of this judgment on your workforce.
• We can help you implement appropriate practices to manage your risks.
  

Contact Anna Dabek.

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