The Court of Appeal has confirmed in The Harpur Trust v Brazel that zero-hour workers employed under permanent contracts should receive 5.6 weeks’ holiday pay calculated using the average rate of pay over the previous 12 week period – their entitlement should not be calculated pro-rata.

What is the case about?

Ms Brazel is employed as a visiting music teacher by The Harpur Trust which runs Bedford Girls School where she gives lessons. She is employed under a permanent zero-hour contract with the Trust, and was described by Lord Justice Underhill as a “part-year” worker. She does not have fixed weekly hours; only works during term times; does not have any work commitments during the school holidays; and is required to take holidays outwith term time.

Workers in the UK are entitled to 5.6 weeks of statutory paid annual leave. This is equivalent to 12.07% of hours worked over a year i.e. (5.6/46.4) x 100 = 12.07%. The 46.4 figure represents 52 weeks of the year minus 5.6 holiday weeks.

Ms Brazel does not work 46.4 weeks of the year. Instead, she works between 32 and 35 weeks depending on the length of the school term. Ms Brazel receives holiday pay at the end of each school term. To calculate her holiday pay entitlement, the Trust would work out 12.07% of her earnings in that school term. This is a method of pro-rating holiday pay which is recommended by ACAS in respect of casual or irregular hours’ workers.

Ms Brazel argued that the Trust was wrong to do this. She set out that as a worker, she should be entitled to 5.6 weeks statutory holiday entitlement and her pay should be calculated by multiplying her normal weekly hours by her average hourly rate over the previous 12 week period prior to the holiday being taken. This is the reference period provided by statute in the UK.

The Court of Appeal confirmed that the law requires employers to calculate a term-time worker’s (or other permanent zero-hour contract worker’s) holiday pay by looking at the average weekly pay over the previous 12 week period (or longer, as weeks when no work is done are not taken into account) and multiplying this figure by 5.6. The Working Time Regulations do not allow for pro-rata reductions for permanent workers who work “part-year”. The ACAS guidance (referred to above) is aimed at casual workers, rather than permanent zero hour contract workers.

This finding makes for odd results, something which was recognised by the Court. If Ms Brazel works for 32 weeks in one year, 5.6 weeks of holiday pay would represent 17.05% of her annual earnings. This is compared to 12.07% for those who work a full year (46.4 weeks). However, there is nothing to prevent a part-time worker being treated more favourably than a full-time worker.

School invigilators, sports coaches or gig economy workers employed under permanent contracts will be entitled to 5.6 weeks holiday pay regardless of the number of weeks actually worked throughout the year. However, the Court suggested that only a minority of workers would be impacted as most who work “part-year” do so on a freelance rather than permanent basis.

It remains to be seen whether The Trust will appeal this judgment to the Supreme Court.

What should employers do?

The impact of this case means that you should:

  1. Assess the employment status of your workers. Do you employ workers under permanent zero-hour contracts? Identify workers who only work “part-year” such as a school term.
  2. Revisit your approach to calculating holiday pay entitlement in respect of those workers. Are their hours calculated on a pro-rata basis?
  3. If so, assess your potential exposure to holiday pay claims and consider whether changes ought to be made to your holiday pay calculations.
  4. Seek advice. Holiday pay is an ever changing area of law which is difficult to navigate.

ACAS may update its guidance on holiday pay to reflect this decision, and to distinguish between casual workers and permanent zero hour contract workers. We’ll keep you updated.

New regulations due to come into force in April 2020 will change the 12 week reference period for calculating holiday pay to 52 weeks. This will ensure that those with variable hours will not be disadvantaged by having to take holiday at a quieter (and so lower paid) time of the year.

If your business is facing any issues with regards to holiday pay, please get in touch with your usual Brodies contact to identify any risks and highlight strategies for the future

Workbox users can also access more information at the pages on employment status and holiday pay.