The Court of Appeal has today handed down an important decision that will affect all workers on permanent contracts who only work part of the year, such as on term time only contracts.
In Brazel v The Harper Trust, the Court of Appeal decided that a teacher engaged on a term time only contract was entitled to 5.6 weeks holiday per year, even though she did not work for the whole year. This was the minimum requirement and it couldn't be pro-rated to reflect the number of weeks she actually worked. Nor, could the employer apply the 12.07% 'formula' for working out her holiday entitlement.
This decision will impact on many organisations (particularly in the education sector) that engage staff on term time only contracts and will, inevitably, drive up costs.
The Harpur Trust employed Ms Brazel on a zero hours contract to teach music. Her contract provided her with 5.6 weeks’ paid holiday, which had to be taken outside normal school holidays.
She worked different hours each week and was paid monthly on the basis of an agreed hourly rate applied to the hours worked in the previous month. The length of the school terms varied from year to year from between 32 and 35 weeks.
The Trust argued it could pro-rate her holiday entitlement and pay to reflect the fact that she worked fewer weeks per year than comparable full time staff.
To ensure she didn't receive more holiday pay than full time staff, it capped her holiday pay by applying a fixed formula of 12.07%. [The 12.07% figure is 5.6 weeks’ holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks.] She argued that this was incorrect and resulted in a significant underpayment.
She was unsuccessful at the tribunal, but succeeded on appeal. The Trust then appealed to the Court of Appeal.
Court of Appeal's decision
The key issue was whether term time only workers (or others who only work part of the year on permanent contracts) could have their holiday entitlement pro-rated to reflect the number of weeks they actually work each year and, separately how their pay should be calculated.
The pay issue was straightforward. Workers should receive their 'normal pay' when they take a holiday. In the case of those whose pay varies, this had to be averaged over the previous 12 weeks. Applying the 12.07% formula was therefore wrong.
Most organisations already do this.
But, the Court said that these workers must receive at least 5.6 weeks holiday. It could not be pro-rated because the Working Time Regulations 1998 don't include a pro-rata principle. Plus, leave doesn't accrue on a day to day basis other than in the first year of employment.
For part time staff, this doesn't matter because their 5.6 weeks holiday will reflect the hours or days they actually work each week. So, for someone working three days a week, 5.6 weeks holiday amounts to 16.8 days leave.
The Court accepted that this straightforward approach could lead to 'odd results' in 'extreme cases'. It said that employers who only needed staff for a few weeks each year would have to put up with this, or change the way in which they contract with their staff if they didn't want the 'additional costs that come with that choice'.
This decision only applies to staff engaged under permanent contracts. You can continue to apply the 12.07% formula to work out the accrual rate for casual staff. But, if you work out the holiday entitlement of term time only workers (and others you engage on other part year contracts) based on the weeks they actually work you will have to change this to make sure they receive 5.6 weeks paid holiday per year - even if they only work a few months per year.
The union Unison intervened in this case and has helped many term time workers bring claims against their employers for underpaying holiday - see our blog on the claim £3.7 million claim against Greenwich Council. It's press release said “The government’s failure to provide guidance in this area has left workers in limbo. The courts have once again had to step in to stop the abuse of workers and to fix what legislation should have made clear from the outset.”
We therefore anticipate that it will encourage term time workers to bring claims to recover underpayment of holiday. It's therefore very important that you take steps now to make sure your staff do receive the correct number of holidays (and pay).