In Harper Trust v Brazel the Supreme Court has given its long-awaited judgment and confirmed that “part-year” workers are entitled to have their statutory leave and pay calculated in line with the relevant provisions in the Working Time Regulations 1998 (WTRs) and not the widely used 12.07% Method.

Under the WTRs workers are entitled to 5.6 weeks' paid annual leave. The Employment Rights Act 1996 ("ERA") sets out methods to calculate what a week's pay amounts to for the purpose of establishing the correct holiday pay. For employees who have no normal working hours it is necessary to calculate holiday pay based on their average weekly remuneration in the previous 52 weeks (previously a 12 week reference period was used). Any weeks where no remuneration was payable are excluded and instead earlier weeks where remuneration was paid are used.

This method of calculation can cause real complexities for workers who work irregular hours, as a result many employers (in accordance with previous Acas guidance) calculate holiday pay on the basis of 12.07% of pay for each hour worked. This is on the basis that the 5.6 weeks’ leave entitlement under the WTRs amounts to 12.07% of a full time person’s working hours.

Background

Mrs Brazel was a visiting music teacher at a school run by the Harpur Trust (Harpur). She was employed by Harpur under a permanent contract on a zero hours basis. Harpur is not obliged to provide a fixed minimum amount of work and she was paid only for the amount of work carried out. Mrs Brazel worked mainly during school term-time. The length of the school terms varies from year to year but is between 32 and 35 weeks.

Under her contract of employment, Mrs Brazel is entitled to 5.6 weeks’ paid holiday each year and is required to take this leave during school holidays. The Trust made three payments in respect of her holidays in April, August and December, calculated at 12.07% of her earnings for the previous term.

Employment Tribunal

Mrs Brazel brought an employment tribunal claim for deductions from wages in respect of holiday pay, asserting that the 12.07% approach bears no relation to the calculation required by the WTRs. She argued that her holiday entitlement should be paid according to the provisions in section 224 of the ERA 1996, namely at the level of her average earnings over the 12-week period immediately before holiday was taken. That approach would result in her, as a term-time only employee, receiving a higher percentage of annual earnings as holiday pay. (If she worked 32 weeks of the year, it would equate to 17.5% of her annual earnings). She submitted that there was nothing in the relevant provisions requiring a different approach where the worker does not work a full year. Mrs Brazel claimed unlawful deductions from wages for the difference, as well as a claim asserting less favourable treatment on grounds of part-time status.

Employment Tribunal Decision

The tribunal dismissed Mrs Brazel’s claims. It held that a pro rata principle should apply, and that the statutory scheme should be read down for part-time workers who worked fewer than 46.4 weeks per year so that payment was capped at 12.07% of annualised hours. The tribunal found that words could be read into regulation 16 of the WTRs to that effect.

Appeals

Both the Employment Appeal Tribunal (EAT) and the Court of Appeal disagreed with the Tribunal and found that the 12 week average calculation should be made as required by the WTRs and the Employment Rights Act 1996.

The Court of Appeal held that it was wrong to read words into the WTRs allowing term-time only workers to have their holiday pay capped to 12.07% of annualised hours. The Court went on to say that to add the pro rata requirement or an accrual system into the WTRs would be substituting an entirely different scheme. It was acknowledged by The Court of Appeal that this may mean that the holiday pay to which a part-year worker is entitled represents a higher proportion of their annual earnings than in the case of a full-year worker, however the Court did not consider this to be unfair and considered this to be an exceptional case.

Supreme Court

The Trust appealed arguing that a part-year worker's entitlement should be pro-rated to take into account that they did not work each week and to reflect the amount of work actually undertaken during the annual leave year.

The Supreme Court concluded that employees working only parts of the year should not have their leave entitlement reduced pro rata by only taking account of the weeks they work. It was further clarified that the correct test for calculating holiday pay for those who work varying hours should not take account of weeks which are not worked.

Comment

The judgment is most likely to affect those who work in schools, universities, colleges and nurseries, but it is not limited to those workers. Anyone who is engaged in a permanent contract but working only part of a year will benefit, including casual and zero-hours workers. What’s more, they may be entitled to make a claim to pay they have previously lost or for holiday which has been underpaid, although this is likely to be limited to the previous 2 years only.

If you need further advice with regards to this decision and how it impacts you or your organisation please get in touch with Senior Solicitor Emma Elmerhebi emmaelmerhebi@eatonsmith.co.uk T: 01484 821 415