The long-awaited Supreme Court decision in Harpur Trust v Brazel has now been handed down.
The decision clarifies the position on how holiday pay for irregular workers on permanent contracts should be calculated. This is likely to particularly impact employers in the education sector who engage part-year workers.
Mrs Brazel was a music teacher employed by the Trust on a permanent contract. She worked variable hours each week during term time only. Her hours of work would fluctuate based on the demand for lessons from students. She was therefore both a part-time and part-year worker with irregular hours, on a permanent zero hour’s contract.
Mrs Brazel took her holiday in three equal tranches at the end of each term. Originally the Trust calculated her holiday pay for each tranche based on her average weekly pay for the previous 12 weeks (ignoring those weeks where she did not receive pay), as required under the legislation1. However, in September 2011, the Trust changed the way it calculated Mrs Brazel’s holiday pay and adopted the 12.07% method (discussed in further detail below). This produced a less favourable result for Mrs Brazel than the previous calculation.
Mrs Brazel brought proceedings in the Employment Tribunal for unlawful deduction of wages, which decided against her on the issue. She then appealed to the Employment Appeal Tribunal, where she was successful. The Trust appealed this decision but was unsuccessful in the Court of Appeal. This then led to an appeal to the Supreme Court, who have ultimately rejected the Trust’s argument and have confirmed that part-year workers should not have their holiday pay pro-rated.
This judgment will impact the holiday pay calculation for workers on permanent contracts who have irregular working patterns where their pay corresponds to those working patterns. As such, only workers with no normal working hours and who are paid on an hourly or daily basis will be impacted. It is likely that the definition of ‘permanent’ contracts will be open to debate.
This means that the decision does not impact full-time workers, part-time workers with regular hours, or any worker with a fixed salary. As such, for our clients in the education sector, this means, for example, that a teaching assistant (whether part-time or full-time) on a permanent term-time only contract, who is paid a salary, will not be impacted by the Supreme Court’s decision.
Although there is little doubt that the Supreme Court decision adversely impacts employers of part-year workers in particular, the decision is not limited to part-year workers only and, for example, would also apply to part-time workers with no set hours (i.e. zero-hours workers).
The Working Time Regulations (WTR) provide that a full-time worker is entitled to 5.6 weeks’ paid holiday. The amount of pay for that holiday depends on the average weekly pay.
For workers with no normal working hours, holiday pay is calculated based on the average earnings of a 52-week reference period. Any week in which the worker did not get paid is ignored.
A method which was previously utilised for calculating holiday pay for those with atypical hours was the ‘12.07% method’. Indeed, at one stage, this method was recommended in the ACAS guidance. The 12.07% was calculated by taking a working year of 46.4 weeks (i.e. 52 weeks less 5.6 weeks annual leave), with 5.6 weeks’ being 12.07% of 46.4 weeks. This method was regularly adopted by a large number of employers.
However, what is clear from the Supreme Court’s decision, is that employers can no longer calculate holiday pay for workers with irregular working patterns using the 12.07% method.
Following this decision, for permanent workers with irregular hours, holiday pay should be calculated by looking at the work that worker has undertaken across a 52-week reference period, discounting the weeks in which the worker did not receive any pay, then calculating their average week’s pay across the 52-week period, and then multiplying it by the 5.6 weeks’ annual leave entitlement.
This means that part-year workers should not have their holiday entitlement pro-rated. This has the potential to produce some bizarre results. For example, an employee who only works one week per year but is on a permanent contract (e.g. an exam invigilator) may be entitled to only one week’s pay for the work completed, but could be entitled to 5.6 weeks’ holiday pay.
Whilst the Supreme Court’s decision will not be welcomed by many employers, particularly schools and those in the education sector, it may not be as bad as initially feared given that it very clearly does not apply to workers who are term time only on a fixed salary.
Although this decision may lead to an increased number of claims by certain part-year workers, a claimant seeking to bring an unlawful deduction from wages claim only has three months beginning with the date of the latest deduction to bring such a claim. Where there have been a series or chain of deductions (i.e. regular underpayment of holiday), a claimant can usually only claim up to a maximum of two years from the date of the most recent deduction. On this point, it is worth noting that where there has been a gap of more than three months between deductions, the chain will be broken.
Employers will now need to consider how to deal with these issues moving forward. As well as reviewing current holiday practices to ensure they comply with the judgment (and adopting the correct holiday pay calculation going forwards if they do not), it may also be worth organisations undertaking an audit to establish what workers they have on permanent contracts but with irregular hours, who could be impacted by the judgment. This should help quantify potential exposure to date.
It is also worth employers considering whether to move away from engaging workers on permanent contracts with irregular hours. For example, an employer may wish to engage workers on fixed-term contracts for a specific period of time to avoid this issue. Alternatively, they might want to look at engaging individuals on a self-employed/freelance basis if the work to be undertaken is short and irregular. That being said, we do appreciate that in some circumstances it may be worth paying the higher holiday entitlement in exchange for the flexibility offered through a permanent zero hours contract.
It is important to note that the Supreme Court’s decision does leave a lot of questions unanswered. For example, what is the calculation for holiday pay when a worker wants to take leave in anything other than a week? It is likely that further litigation will result from the various ‘unknowns’ arising from the judgment, and we will continue to update you as case law develops in this area.
If you would like to discuss this further or require any specific advice, please do contact the Employment Team.
1Note that from 6 April 2020, the holiday pay reference period increased from 12 to 52 weeks.