Employers, part-year workers and holiday pay – the court cases continue

The growing list of case law relating to holiday pay calculations has been added to yet again after the Court of Appeal ruled in a case relating to a music teacher employed on a zero-hours contract. The case is likely to have large implications across various sectors.

In Harpur Trust v Brazel [2019] EWCA Civ 1402, the court said that the Working Time Regulations 1998 (WTR) do not allow a “pro-rata principle” to be applied when calculating holiday pay in respect of employees who do not work throughout the whole year.

The relevant facts of the case

The Claimant, Ms Brazel was employed by the Respondent at Bedford Girls School. Given the nature of this role, she did not undertake any set shifts and the number of hours she worked varied from week to week. However, it was accepted that she worked an average of 32 weeks of the year. Her contract entitled her to the full-time equivalent of 5.6 weeks’ annual leave, which she was required to take during school holidays. She was paid on an hourly basis which was based on the number of hours she had worked the previous month.

In calculating the correct level of holiday pay due, the Respondent followed ACAS guidance in relation to casual workers. This involved a calculation of her earnings on a pro-rata basis. The Claimant argued that in using this process, the Respondent was failing to comply with the Working Time Regulations (“WTR”) and therefore underpaying her. She argued that her holiday pay should be calculated by taking the average weekly remuneration for the 12 weeks prior to the calculation date and multiplying it by 5.6.

When this calculation was applied, her holiday pay would amount to around 17.5% of her annual pay, significantly higher than the 12.07% figure for staff working the full year.

The Claimant was successful on appeal to the Employment Appeal Tribunal and the Respondent appealed to the Court of Appeal, arguing that pro-rating of holiday pay for part-year workers was correct, as it avoided the unjust and unintended result of the holiday pay of part-year workers representing a higher proportion of their annual earnings than that of full-year workers.

The decision

Lord Justice Underhill delivered the judgment of the Court of Appeal dismissing the Trust’s argument, and plainly stated the WTR do not provide for pro-rating in these circumstances and noted the clear distinction between ‘part-year’ workers and part time workers who work throughout the entire year, as the WTR do provide for pro-rating in those instances.

The crucial point for workers like Ms Brazel on permanent contracts is that it is not unreasonable to fix the amount of their holiday entitlement. It follows from this that for the days in which they are not required to work, their holiday pay should reflect the reality of their working pattern.

It appears that this decision may be appealed to the Supreme Court, so it may not be the end of these considerations.

What does this mean for employers?

Employers across a wide range of sectors are advised to review their approach to any individual who could be considered a “part year worker”.

On a practical note, following Brazel it may be that workers with atypical hours require a separate calculation in order to ascertain their holiday pay each time they take annual leave. It follows that this could present difficulties with employees seeking only to take holidays after particularly busy periods, or employers refusing to approve leave at such times.

There are further developments expected in April next year which will change the way in which an employee’s average earnings is calculated for the purpose of ascertaining the correct level of holiday pay due. We will keep you advised of these developments.