Supreme Court confirms that holiday pay for part-year, permanent contract workers should not be calculated using 12.07%

In 2019 the Court of Appeal held that workers who work only part of the year but are engaged on permanent contracts ("part-year workers"), should receive 5.6 weeks' annual leave calculated using the average rate of pay over the reference period, at that time 12 weeks (now 52 weeks), disregarding any weeks in which remuneration was not payable.

The Harpur Trust appealed to the Supreme Court claiming that annual leave entitlement for part-year workers should be calculated proportionally, to reflect the amount of work performed during the annual leave period.

This week, the Supreme Court issued a judgement dismissing the Harpur Trust's appeal.

Background

Mrs Brazel is a visiting music teacher at a school run by the Harpur Trust. Mrs Brazel works different hours each week, depending on how many pupils require lessons. There are no minimum hours of work guaranteed to Mrs Brazel and she has no normal hours of work. Mrs Brazel takes her annual leave during the school holidays when she is not required to provide lessons.

In 2011 the Harper Trust changed the method of calculating Mrs Brazel's holiday pay. It had been calculated in accordance with section 224 of the Employment Rights Act 1996 ("ERA") which provides that, for employees with no normal working hours, "a week's pay" is the average weekly remuneration in the period of 12 weeks ending with the start of the leave period, ignoring any weeks where remuneration is not received.

As a result of amendments to the Working Time Regulations 1998 ("WTR") in April 2020, the reference period for calculating a week's pay for statutory leave purposes was increased from the 12-week period set in section 224 of the ERA to 52 weeks (see our earlier blog for more details on this change). 

The Harpur Trust, in line with the method recommended by ACAS guidance at that time, chose instead to apply a 12.07% multiplier to the hours worked by Mrs Brazel, reflecting the percentage that 5.6 weeks' holiday represents for full-time employees. Mrs Brazel's holiday pay entitlement reduced, and she lodged an unlawful deduction from wages claim.

Earlier decisions

The Employment Tribunal held in the Harpur Trust's favour. However, Mrs Brazel successfully appealed to the Employment Appeal Tribunal and then the Court of Appeal (see our earlier blog).

Supreme Court decision

The Supreme Court stated that the issue was essentially one of statutory interpretation. It concluded that the incorporation into the WTRs of the means of calculating a week's pay, as set out in section 224 of the ERA, was a policy choice made by Parliament. There was nothing in the WTRs which permitted alternative methods of calculating holiday pay as suggested by the Harpur Trust.

Moreover, it held that there was no requirement to pro-rate Mrs Brazel's leave to that of a full-time worker. Even if she was entitled to a proportionally greater amount of leave than a full-time worker, such a construction was compliant with EU and domestic law.

What should employers do?

In light of this decision, it is important to:

1. Identify any part-year workers engaged under permanent contracts;
2. Review your approach to calculating holiday pay entitlement for such workers, ensuring holiday pay entitlement is calculated appropriately;
3. Determine whether changes to contracts and/or policies are required;
4. Consider whether to continue using part-year permanent contracts or adopt other methods of engaging such workers, and;
5. Assess your potential exposure to unlawful deductions from wages and holiday pay claims.

This decision confirms the anomaly that part-year workers may end up receiving more pay for their holiday than colleagues who have alternative working patterns, including those who work full time. It will be interesting to see how this area develops in future and whether any full time workers (who statistically are more likely to be male) bring grievances and/or indirect sex discrimination claims on the basis that they are being treated less favourably than part-year workers (who statistically are more likely to be female) with regard to holiday pay. 

You should seek advice from Brodies Employment and Immigration team if your business is facing any issues with regards to holiday pay. 

Workbox by Brodies subscribers can also access more information on the following pages: Employment Status, Holiday Pay and Holidays: Atypical Workers.