This issue has today in part been decided by the Supreme Court in the case of Hartley v King Edward VI College. In Hartley, a sixth form college had withheld a day’s pay from its striking teachers – calculated as 1/260 of salary. The teachers challenged this and argued that the college had used the wrong daily accrual rate and should have only withheld 1/365 of salary.
The Court of Appeal held in favour of the college, but the Supreme Court has now overturned that judgment.The Supreme Court held that the teachers’ salary accrued at a daily rate of 1/365.
The court’s grounds for doing so are fact specific, but the following key points come out of the judgment:
- The Apportionment Act applies to employment contracts, except where the contract is infinitely divisible, such as where there is a set hourly rate.
- The effect of this is that salary accrues at an equal daily rate.
- The court has not set a standard accrual rate which would apply in all situations. The only situation on which it has provided certainty is where an employee is on an ‘annual contract’ (‘annual contract’ is not a commonly understood term but it seems to require salary payments to be made on a monthly basis) and works outside their contractual hours (in the way that teachers do). For other categories of employees, the judgment makes clear that the daily accrual rate will depend upon the true construction of the contract.
- Employer and employee can contract out of the Apportionment Act by agreeing an alternative daily accrual rate – it would be best to be clear in the contract that this is what the parties intend.
Whilst this case concerned the withholding of pay in a strike situation, the principles apply equally to other types of unpaid leave – eg sabbatical leave, dependants’ or compassionate leave. Businesses, particularly those with unionised workforces, may now wish to review their employment contracts/employee handbooks to assess to what extent they specify a daily rate of accrual. If they do not do so, it may be worth making a small amendment to ensure they do and potentially amending current contracts at the next pay review. Many employment contracts will already specify the value of a day’s untaken holiday in the provision dealing with the calculation of untaken holiday pay on termination. A broader term covering all other types of leave would now be advisable, particularly if the employer does not wish to use a 1/365 accrual rate.