Is it happy (summer) holidays for employers?

Unfortunately not.  In the long awaited appeal decision in Harpur Trust v Brazel, the Supreme Court (“SC”) has dealt a big blow for employers in relation to holiday pay claims.  The SC 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.

Employers may recall the 2019 Court of Appeal decision in this case, which we reported here.

Ms Brazel was a music teacher engaged on a term time only zero hours contract.  She 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 Working Time Regulations 1998 (“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.  (NB: since 6 April 2020, the calculation of a week’s pay under the ERA uses a 52 week reference period, not 12 weeks.) 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) and her case went all the way to the SC.

What did the SC say?

The SC 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, 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.

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.

What now?

Since the CA’s decision in 2019, a number of employers, particularly those 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.