Last week, the Supreme Court reached a decision in an important case relating to holiday entitlement and pay for part-year workers. In Harpur Trust v Brazel, the Supreme Court held that a part-year worker’s paid holiday entitlement under the Working Time Regulations (the 'WTR') should not be pro-rated to that of a full time worker to take account of weeks in which no work is done.
We consider the impact that this decision could have on employers of part-year workers and workers on other atypical working patterns.
What was the case about?
Mrs Brazel is a music teacher engaged on a permanent contract by the Harpur Trust, which runs a school in Bedford. Mrs Brazel works variable hours - her hours of work fluctuate depending on the number of pupils needing instrument lessons in any given week. Music lessons are provided in term time only so Mrs Brazel does not work during the school holidays. She is not paid a salary and is instead paid an hourly rate of pay for each hour she works in term time. As she only works, and is paid, for part of the year but is engaged on a permanent (rather than fixed term/short term) contract, the Supreme Court referred to Mrs Brazel as a 'part-year worker'.
Mrs Brazel’s holiday pay claim related to alleged unauthorised deductions from her pay between January 2011 and June 2016. During that time, Mrs Brazel took her annual leave during the school holiday periods (when she was not required to teach). The Trust calculated the music teacher’s working hours during the preceding term then multiplied these total hours by 12.07% and paid her holiday pay at her usual hourly rate for that percentage of her total hours for that term.
In effect that 12.07% method was designed to pro-rate her leave entitlement so that it reflected the amount of work done and ensured she received the same proportion of leave per year as a full-time worker. 12.07% is the proportion that 5.6 weeks’ annual leave bears to the total working year (5.6 weeks’ holiday being the statutory minimum holiday entitlement all workers are entitled to). The 12.07% method has been used by a number of employers to pro-rate holiday entitlement for those who work part-time on variable hours. The method had previously been contained in Acas guidance applicable to casual workers, although that guidance has since been amended to remove reference to the 12.07% method.
Mrs Brazel brought a claim alleging that she had been underpaid for her holiday as a result of the 12.07% method of calculation. Initially, the Employment Tribunal dismissed Mrs Brazel’s claim; however, both the Employment Appeal Tribunal and Court of Appeal found in favour of Mrs Brazel. The matter was appealed to the Supreme Court by the Harpur Trust.
What did the Supreme Court decide?
The Supreme Court held that there is no requirement under EU law to pro-rate the leave entitlement of a part-year worker on a permanent contract and that the WTR do not pro-rate the entitlement of such workers.
Having reached that conclusion, the Supreme Court found that calculating part-year workers’ paid holiday entitlement by using the 12.07% method was not in line with the WTR. On its interpretation of the WTR, Mrs Brazel was entitled to 5.6 weeks’ holiday per year and, to calculate her pay for that leave, the employer must calculate her average weekly earnings across the appropriate reference period immediately prior to the holiday. When carrying out this averaging calculation, the employer must discount any weeks where there was no pay (such as the school holiday weeks for Mrs Brazel), and substitute these with earlier weeks where pay was earned. At the time of Mrs Brazel’s claim, the statutory reference period was 12 weeks but since April 2020 the statutory reference period has been 52 weeks.
Other key points from the judgment include:
- The Court rejected the employer’s argument that the amount of annual leave the worker is entitled to should reflect the amount of work performed by that worker during the leave year. The employer argued that that a worker’s holiday should be pro-rated to reflect the worker’s part time hours and to take account of the weeks in which the worker did no work (which, in Mrs Brazel’s case, was the school holidays). The Supreme Court noted that, except in certain limited circumstances, European case law has established that the minimum entitlements to holiday prescribed by the European Working Time Directive (the 'Directive') are calculated by reference to work actually carried out by the worker. However, it found that there was nothing preventing the WTR from including a more generous entitlement (i.e. one that was not pro-rated to reflect hours actually worked by the worker).
- If applying the WTR to Mrs Brazel’s working pattern would result in her receiving more leave than she would be entitled to under the Directive and receiving a proportionately greater amount of leave than a full-time worker, this could still be compliant with the Directive.
- A more generous entitlement for part-year workers did not infringe the legislation that protects part-time workers – employers must not discriminate against part-time workers but there is nothing preventing treatment that discriminates in favour of part-time workers.
- The Supreme Court acknowledged that the method of calculation set out in the WTR could favour certain part-year workers. However, such anomalies were not so absurd as to justify using any of the calculation methods put forward by the employer (including the 12.07% method) as those methods would represent a significant shift away from the statutory scheme that is set out in the WTR.
- The WTR does include some provisions which allow for pro-rating of leave but these only apply where a worker starts a new job part way through a leave year or where they leave their job part way through a leave year. The Supreme Court held that, if Parliament had intended for leave to be calculated by reference to work done, it would have built in a provision which reflected this – for example, it could have included a provision which discounted weeks in which no work was done (similar to the week’s pay provision which discounts weeks in which no pay is received). The lack of this type of provision led the Supreme Court to conclude that the WTR are not based on the principle that leave entitlement should reflect the amount of work done by that worker during the leave year.
- As well as differing from the statutory method set out in the WTR, the alternative calculation methods put forward by the Harpur Trust were too complicated and would require employers to keep detailed records of all hours worked even where the worker was not paid at an hourly rate.
What are the implications for employers of part-year workers?
The case has significant implications for employers of part-year workers on permanent contracts whose hours and pay vary across the year. Much of the coverage of this case has focussed on the education sector and term-time workers with variable hours and pay but it is worth bearing in mind that such workers are just one example of the type of worker who is likely to be affected by this judgment. Other workers on permanent contracts whose hours vary across the year (perhaps due to seasonal changes in demand) are likely to be affected.
If you employ part-year workers, you should carry out an audit of the contractual and working arrangements in place with these workers. You should review the contractual and policy documentation that applies to these workers as well as ascertaining what happens on the ground, including how leave is booked on your holiday or time & attendance systems and how you calculate workers’ pay for their holiday.
This is a complex area and we would suggest seeking specific legal advice if you have workers who fall into this category.
Are there wider implications?
As the dust settles following this decision, commentators and employers are grappling with the practical implications of the judgment. This includes consideration of how (if at all) the decision could impact on other types of worker.
Any impact of the case depends in part on how your working arrangements operate in practice. The 12.07% calculation method has often been used for casual workers and others with variable hours to determine how much leave they have accrued. This includes casual workers who are not on a permanent contract and who are engaged on an assignment-by-assignment basis. Although the Supreme Court was only required to determine the position for a part-year worker who is on a permanent contract, some of its findings could have an impact on the calculation of leave for casual workers who do not have a permanent contract. However, it is worth noting that the existing pro-rating provisions in the WTR that apply at the start and end of the worker’s contract will bite in this context, which distinguishes a casual worker engaged on a short term assignment from a part year worker engaged across a whole leave year. Those pro-rating provisions are based on the proportion of the leave year that has passed or is yet to pass, rather than the work done or the hours worked by the worker. If you have casual workers who fall into this category, it would be worth reviewing your working practices and considering whether any changes are required.
The case poses a number of questions and views differ on how the Supreme Court’s findings regarding the WTR might impact on other categories of atypical worker. Some of the unanswered questions (which include questions over how pay calculations apply where a worker takes a day’s leave) are likely to be the subject of future litigation. In a post Brexit-era and with continuing uncertainty for businesses seeking to comply with their WTR obligations, there also remains the possibility that the WTR will be reviewed and we may see legislative change in this area.
How we can help
We have extensive experience of advising businesses on their holiday pay arrangements. If you would like more information on the above, or specific advice, please contact Adrian Martin or another member of our Employment Team.
This article was written by Katie Wooller and Eleanor Parsons.
Disclaimer
This briefing gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.