Important Supreme Court’s ruling – holiday pay for permanent “part-year” workers

Background

Mrs Brazel brought a claim against her employer, Harpur Trust, in relation to holiday pay. Ms Brazel was a visiting music teacher, employed on a permanent, zero-hours contract.  She was paid for the work she did. Mrs Brazel did not work a full week and she was not required to work during the school holidays. 

Mrs Brazel argued that, as a worker, she was entitled to a full year’s paid leave (5.6 weeks) in accordance with the Working Time Regulations 1998 and not pro-rated holiday based on the weeks she actually worked.  Mrs Brazel also argued that her holiday pay should be calculated based on her earnings in the previous 12-week reference period (now 52 weeks). The Trust – as many employers have done – was following ACAS’ guidance which suggested that employers use a multiplier of 12.07% to pro-rate holiday entitlement for part year workers (we should add that, since the Supreme Court ruling, this ACAS guidance has been removed).

The Employment Tribunal found in favour of the Trust who had argued her holiday entitlement should have been pro-rated to reflect the portion of the year in which she worked. This was a decision which Mrs Brazel successfully appealed in the Employment Appeal Tribunal and then went on to successfully defend an appeal against in the Court of Appeal and Supreme Court. 

Supreme Court Decision

Where a part-year worker works on a permanent contract throughout the holiday year, but has irregular hours and pay they are entitled to 5.6 weeks statutory leave and their holiday pay should be calculated, not on a pro-rata basis, but based on a ‘week’s pay’ averaged out over the previous 52-weeks.  If the worker does not earn anything during a week, it has to be disregarded and earlier weeks included creating a 52-week reference period.

The effect of the judgment is that Mrs Brazel, and other similar workers, will be paid proportionally more by way of holiday pay than those who work full-time or part-time.

Impact

The impact of this decision should not be underestimated.  We know many employers have been waiting for this decision before making changes (if any) to their holiday policies.  The decision will have financial ramifications for employers as well as causing potential unfairness between full-year and part-year workers (as well as part-time workers).

What do we know? 

• This decision is important for employers who employ workers on part-year contracts with irregular working/pay patterns.  If a term-time worker, for example, is paid a salary each month throughout the entire calendar year, their pay is the same regardless of whether they are at work or on holiday.
• It also applies to someone on a permanent contract who works during the holiday year (albeit part of it). It would apply to others who may work for much shorter periods, such as exam invigilators who work for only a few weeks each year, but who would, if retained on a permanent contract, be entitled to 5.6 weeks’ holiday.
• Whether a permanent worker works a full-year or part-year – they have the same 5.6 weeks’ paid holiday entitlement; employers do not pro-rate.
• Part-year workers have disproportionately more paid leave than full-year workers, given that holiday pay calculations are based on weeks worked over a 52-week reference period where the worker has irregular hours.

Next steps for employers

• As a first step, employers must assess the number of workers that could be impacted by this decision.
• Employers should also ensure that when calculating holiday pay, they use the correct calculation moving forward and make any amendments to workers’ contracts to reflect how holiday pay will be calculated moving forward.
• Consider whether fixed-term or a temporary contract (rather than permanent) might be preferable in the future – although there could be risks with ending a permanent contract so take advice.
• Think about when holiday is taken – if someone working part-year wishes to take holiday, when should holiday be taken? There could be risks with changing when holiday can be taken (as well as ensuring compliance with Working Time Regulations).
• How can employers avoid back-pay claims? Again, take advice on this.

Given the Supreme Court’s judgment we are likely to see a number of term-time workers  and other part-year workers on permanent contracts bringing claims for unpaid holiday where they have been paid based upon either a pro-rated holiday entitlement or where payment has been calculated based on 12.07% of pay . Employers should carry out assessments of term-time workers’ holiday payments to date and work out whether (and to what extent) they might be liable for back-payments of holiday pay. Dealing with claims in a litigious forum is unlikely to be the most commercial option for employers (or indeed employees) and therefore attempting resolution of any claims through negotiation should be strongly considered.

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