Calculating holiday pay for ‘part-year’ workers

The Supreme Court has handed down its decision in a long-awaited appeal against the Court of Appeal’s decision, which in 2019 held that the holiday entitlement for a permanent employee working part of the year (term time only), should not be pro-rated to reflect the fact that she only worked for part of the year.

Harpur Trust v Brazel [2022] UKSC 21

Facts

Ms Brazel was employed as a music teacher at a school run by the Harpur Trust (the Trust), working term time only for variable hours each week, under a permanent zero hours contract. She was entitled to a minimum of 5.6 weeks’ paid holiday each year under the Working Time Regulations 1998 (WTR), which she was required to take during the school holidays.

An issue arose over the way in which Ms Brazel’s holiday pay was calculated. Prior to 2011, her holiday pay was calculated by taking her average week’s pay (over the preceding period of 12 weeks, ignoring any weeks in which she was not paid), and paying her a third of her annual entitlement of 5.6 weeks’ holiday following each term.

From September 2011, the Trust changed its calculation method in line with the Acas guidance at the time for calculating holiday pay for casual workers, which stated that the statutory entitlement of 5.6 weeks’ leave is equivalent to 12.07% of the hours worked over a full year, based on working the whole year. The Trust calculated the number of hours worked each term, then took 12.07% of the total and paid Ms Brazel for those hours at her hourly rate as her holiday pay. She claimed that by adopting this method of calculating her holiday pay, the Trust was underpaying her.

After pursuing an unsuccessful grievance, Ms Brazel brought a tribunal claim for unlawful deductions from wages. Her claim was initially dismissed by the employment tribunal, but upheld by both the Employment Appeal Tribunal and the Court of Appeal (see our previous briefing). The Trust appealed to the Supreme Court.

Supreme Court decision

The Supreme Court has unanimously dismissed the Trust’s appeal, upholding the decisions of the EAT and Court of Appeal.

It rejected the Trust’s argument that a part-year worker’s holiday pay must be pro-rated to account for weeks not worked, in order to conform to principle under the Working Time Directive that holiday entitlement (and pay) should reflect the amount of work performed. EU law does not prevent workers being entitled to a more generous provision under domestic legislation.

The Supreme Court considered itself bound by the provisions for the calculation of holiday pay under the domestic WTR, as chosen by Parliament. Regulation 16 WTR references the method for calculating a week’s pay under s224 Employment Rights Act 1996, at the time based on a 12-week reference period, ignoring any weeks in which no pay is received. There is no requirement under the WTR to pro-rate holiday entitlement for part-year workers, to make it proportionate to that of a full-time worker.

It also dismissed the Trust’s argument that calculating holiday pay in this way would lead to an ‘absurd result’ whereby those working part-year only would receive a proportionately higher amount of holiday pay than those working regular full or part time hours. In the Court’s view, a slight favouring of workers with a highly atypical work pattern is not so absurd as to justify a wholesale revision of the existing statutory scheme, as would have been required by the Trust’s preferred calculation methods.

Consequences of this decision

The Supreme Court’s decision means that this case has now reached the end of the litigation road. It will be of most immediate consequence to those engaging permanent staff on part-year contracts, such as term-time only staff in the education sector, who are now entitled to holiday pay based on the more favourable method of calculation argued by Ms Brazel.

The decision will not change the calculation of holiday pay for those working regular hours throughout the year, whether full or part time. However, it could potentially be used by those working irregular hours for parts of the year only, and whose holiday pay is based on the old 12.07% guidance, to challenge their employer’s method of holiday pay calculation.

Since 6 April 2020, the calculation of a week’s pay under the ERA changed from an average of 12 to 52 weeks’ pay, excluding any weeks in which no remuneration is payable. The current Acas guidance on calculating holiday pay was amended following the Court of Appeal’s decision in this case, and no longer makes reference to using the 12.07% calculation for workers without regular hours.

The Supreme Court clearly considered themselves to be constrained by the current wording of the WTR, so it will be for Parliament to decide whether or not to make any amendments to the legislation in light of the Court’s decision. This is highly unlikely to happen any time soon, although many legal commentators would agree that the WTR are long overdue an overhaul.

If you would like to discuss the contents of this article further please contact Birketts’ Employment Team. For more analysis of this decision and potential options for employers to consider, see the separate article by Abigail Trencher.