Case Law Update: Holidays for part-year workers

A brief background

Workers in Great Britain have a right to a minimum of 5.6 weeks’ paid annual leave under the Working Time Regulations 1998 (“WTR”). However, the EU Part-Time Workers Directive established that, in respect of part-time workers, “where appropriate, the principle of pro rata temporis shall apply”.

Where workers have regular hours but only work part of the year (e.g. term-time), historically, employers have pro-rated their holiday entitlement according to the hours that they work compared to a full-time equivalent worker.

Where workers do not have normal working hours and do not work every week of the year (e.g. casual/zero hours), historically, many employers have taken the approach of saying that holiday entitlement accrues at the rate of 12.07% of hours worked.

Under the WTR, workers are entitled to be paid at the rate of a “week’s pay” in respect of each week of leave. If a worker does not have normal working hours, a “week’s pay” is the worker’s average weekly pay in a 52 week reference period (ignoring any weeks in which no remuneration was paid) immediately before the first day of the annual leave being taken.

N.B. prior to 6 April 2020 the reference period was 12 weeks rather than 52 weeks. The Harpur Trust v Brazel case relates to facts that happened prior to 6 April 2020, so it refers to a 12-week reference period.

Facts of Harpur Trust v Brazel

Ms Brazel was a visiting music teacher at a school run by the Harpur Trust (“the Trust”) and she was engaged on a permanent zero hours contract.  Ms Brazel only worked during term-time. She worked different hours each week, depending on how many pupils needed lessons. She was paid only for the hours that she taught.

Ms Brazel was, therefore, part-time in that she:

• did not work a full working week; and
• did not work for large parts of the year (i.e. during school holidays).

This case is concerned with this second type of part-time working (“part-year working”).

Ms Brazel was entitled to 5.6 weeks paid holiday per year.  At the end of each term, the Trust paid her holiday pay at the rate of 12.07% of her earnings that term (12.07% being a common formula used in the calculation of holiday entitlement for workers with no normal working hours).

Ms Brazel argued that the 12.07% approach was wrong – she said her holiday entitlement should have been calculated using the reference period set down in the WTR and the Employment Rights Act 1996 (“ERA”) at the time, by calculating her average earnings in the 12-week reference period immediately before the holiday was taken. This would have meant she received a higher rate (17.5%) of holiday pay.

Ms Brazel brought a claim for unlawful deductions from wages (amongst others).

The Tribunal dismissed Ms Brazel’s claims and held that a pro rata principle should apply, so that payment was capped at 12.07% of annualised hours.

However, the Employment Appeal Tribunal and the Court of Appeal disagreed with the Tribunal, holding that there was no requirement in the WTR to pro rate holiday pay for part-year workers and that it, therefore, should not have been capped at 12.07% of annualised hours.

The Trust appealed to the Supreme Court.

Supreme Court decision

The Supreme Court has held that the amount of leave to which “part-year” workers employed under a permanent contract are entitled should not be pro-rated to be proportional to that of full-time workers where the part-year worker would receive less than 5.6 weeks’ paid annual leave. Part-year workers are entitled to a minimum of 5.6 weeks’ annual leave paid at the rate of a “week’s pay” in respect of each week of leave taken.

The Supreme Court held that:

1. It does not matter if a part-year worker receives disproportionately more paid leave than other workers.  The issue is one of statutory interpretation;
2. The Trust’s alternative methods for calculating holiday pay (including using the 12.07%), which it put forward as part of the appeal, were directly contrary to the statutory method set out in the WTR;
3. The incorporation into the WTR of the definition of an average week’s pay in the ERA for the purposes of determining holiday pay, including for those who work very irregular hours, was a choice made by Parliament;
4. 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 Trust’s alternative methods of calculation would require.

Our comment

Perhaps the most difficult aspect of the judgment for employers is that the SC has been quite general in its description of who is a “part-year” worker. Its loose definition would seem to extend beyond those employees who have a structured, reduced, working pattern (e.g. term time only) and encompass anyone who works on an ad hoc or irregular basis so that there are some weeks when they perform no work at all (e.g. casual/zero hour workers).

Since the Court of Appeal’s decision in 2019, employers in the education sector have been waiting to see whether this decision would be overturned before changing the way in which they calculate holiday pay for part-year workers.  Whilst it is an unwelcome decision, employers at least now have certainty on the position.

Unlawful deductions from wages claims from part-year workers are likely to increase.  Since 2014, any such claims will be limited to unlawful deductions made in the last two years.

We would urge any employers currently using the 12.07% approach to pay holiday to staff (whether on zero hours contracts or fixed hours in term time only) with permanent contracts to take advice.

There is no further right of appeal for this case and so the decision is final.  It would be up to Parliament to legislate for any changes.