20/09/2022

Employers across the UK were dealt another significant blow in the long running holiday saga of how holidays, and holiday pay, should be calculated, when the Supreme Court handed down its long-awaited judgment in the case of Harpur Trust v Brazel,  confirming  that part-year employees (and those working irregular hours) were entitled to 5.6 weeks’ paid holiday calculated in accordance with a 12-week reference period (now 52 weeks in GB).

Background

Mrs Brazel was a music teacher who worked on a zero hours contract with Harpur Trust. Although employed on a permanent contract, she did not get a yearly salary but was only paid for the times when she worked, which excluded the times the school was closed. Ms Brazel did not work every day, nor every week.

Ms Brazel complained about the method used to calculate her annual leave entitlement. The Trust relied on the calculation endorsed by ACAS, namely that for every day Ms Harper worked, she accrued 12.07% of that time as holiday. The Trust stated that this was a fair and proportionate reflection of the hours worked.

Ms Brazel stated that, as she was a permanent employee, her holiday entitlement should not be pro-rated, but she should receive 5.6 weeks paid annual leave as set out by the Working Time Regulations (WTR).  She argued that her annual holiday pay should therefore 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 statute).

This would have effectively meant that Ms Brazel received proportionately more annual leave/pay than her full-time counterparts. The example used by the school was that a teacher who only worked one week in the year, and was paid £1000, would now be entitled to 5.6 weeks’ paid annual leave, at a cost of £5600.

Under the Working Time Regulations, accrual of annual leave can only take place in the first, and last year of employment.

Previous Judgements

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.

Supreme Court Judgement

At the Supreme Court, both Brazel and Harpur put forward different methods for calculating holiday pay which included:

• Calendar week method
• Percentage method (relied on by Harpur)
• The worked year method (relied on by Harpur)

The calendar week method considered Ms Brazel’s entitlement based on the 3 terms she worked in the academic year and assumed she should be paid 1/3 of the 5.6 weeks entitlement per term (1.87 weeks). By using the calendar method, Ms Brazel said the school should have considered the average hours worked within the 12-week reference period to give average week worked and then multiply it by the hourly rate of pay. This then should be multiplied by the 1.87 weeks’ entitlement per term.

The percentage method involved taking the hours worked by Ms Brazel and applying the 12.07% principle, which had been adapted by many employers when calculating annual leave entitlement for atypical workers and which had been endorsed by ACAS.

The unworked year method involved calculating the proportion of a ‘full working year (46.4) that employees actually work, and pro-rating the entitlement for the weeks Ms Brazel actually worked, i.e., if Ms Brazel worked 0.73 of a full working year of 46.4 weeks then she was entitled to 0.73 of 5.6 weeks which equated to 4.09 which were to be paid at the rate of an average weeks’ pay.

The Supreme Court agreed with Ms Brazel, rejecting the Harpur Trust arguments and methods of calculating, confirming that:

• Workers/employees who work for varying hours during only certain weeks of the year but have a continuing contract throughout that year are deemed to be ‘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, i.e., part year workers are entitled to 5.6 weeks paid annual leave under the WTR.
• The Working Time Regulations were clear; and there was no need to overturn the statutory provisions to deal with atypical workers in a different way.
• 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.

 

The Supreme Court judgment confirmed, 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.  Whilst the WTD permits the pro-rating of holiday entitlement for part-year workers, the WTR clearly did not. As such, part-year, permanent workers in the UK benefit from this more favourable approach adopted by the legislators.

Whilst there is an obvious logic that paid time off from work should be in some way intrinsically linked to the time spent in work, this was not the decision of the Supreme Court, and we now have a system where non-working weeks are included for calculating accrued holiday entitlements but ignored when calculating holiday pay.

In summary:

• The holiday entitlement for a part-year, permanent contract, is not pro-rated to that of a full-year worker. The WTR only permits pro-rated entitlement of the 5.6 weeks in the first and last year of employment, in other words based on time passed not work done.
• Zero-hours and part-year employees on permanent contracts have an automatic right to 5.6 weeks holiday, regardless of the amount of time they work.
• What amounts to a ‘week’ will depend on the average hours worked in the preceding period, in accordance with the ‘calendar week’ method.
• For part-time employees who have normal weekly working hours, the judgment makes no difference as their 5.6 weeks’ holiday will continue to reflect their normal working hours within a week.

Commentary

Whilst aspects of the Supreme Court’s judgement are clear, there are still a number of unresolved matters. Is the 12.07 % accrual approach still lawful for zero-hours workers treated as employees only for the purposes of each assignment they undertake? We expect that it is.

The next big issue is how do you express holiday entitlement in terms of days or hours? If a worker works a different number of hours or days each week, how does the employee quantify their annual leave entitlement or the appropriate rate of pay?  The answer isn’t clear and the WTR are silent on the matter. Employers are being pointed to the BEIS Guidance ‘How to calculate holiday entitlement for workers on different types of contract (available here). For example, if the average week is 2 days long, then a day’s holidays is 0.5 of a week. It should therefore attract 0.5 of a week’s pay and 5.6 weeks holiday entitlement should be reduced by 0.5 in the same way.

Although the widespread perception is that this decision only has ramifications for the education sector, this is not the case. Employers who permit employees to work ‘part-year’ such as term time, may also be falling foul of the regulations if they have been reducing an individual’s holiday leave entitlement to reflect the hours worked and not the minimum 5.6 weeks as set out by the regulations.  Therefore, all employers are encouraged to review their existing holiday pay arrangements to understand what impact, if any, this judgment will have, particularly as there is no 2-year backstop for employers in Northern Ireland for backdated holiday pay claims where there is a series of continuing deductions.

There is widespread speculation that the Working Time Regulations are ripe for review post Brexit. This decision may prompt a growing momentum from employers and industry bodies for legislative change.