The Court of Appeal has ruled on how to calculate holiday entitlement for permanent employees who work for only part of the year. They are entitled to a minimum of 5.6 weeks’ holiday per year. Employers cannot pro-rate their holiday entitlement to reflect the number of weeks actually worked (The Harpur Trust v Brazel).
Music teacher employed on permanent zero-hours contract
The Harpur Trust employed Ms Brazel as a music teacher. She had a permanent zero-hours contract and was entitled to 5.6 weeks’ paid holiday. She had no normal working hours. The Trust paid her an agreed hourly rate for the hours worked in the previous month. She only worked during school terms, which varied in length.
Ms Brazel had to take her leave during school holidays. The Trust made three payments for her holiday in April, August and December. On each occasion, it calculated her holiday pay as 12.07% of her earnings the previous term. It did this because ACAS guidance on calculating holiday entitlement for casual workers says that the 5.6 weeks’ statutory holiday entitlement represents 12.07% of a working year of 46.4 weeks (52 weeks - 5.6 weeks).
Ms Brazel claimed this calculation resulted in a significant underpayment.
Employment Tribunal rules pro-rating holiday is lawful
The Employment Tribunal dismissed her claim. It held a part-time worker who works for only part of the year should have their holiday entitlement pro-rated to reflect the weeks actually worked. It agreed with the Trust that it could cap Ms Brazel’s holiday pay at 12.07% of the hours worked. Otherwise term-time only workers might receive a higher percentage of annual earnings as holiday pay than a full-time worker.
Ms Brazel appealed the decision.
Employment Appeal Tribunal rules pro-rating unlawful
Ms Brazel’s appeal succeeded in the Employment Appeal Tribunal (EAT).
The EAT held that the Trust should have calculated Ms Brazel’s holiday entitlement and holiday pay using the normal rules. The Working Time Regulations do not include any provision for pro-rating and so the Tribunal was wrong to insert one. For workers whose pay varies, employers should calculate holiday pay based on average pay in the previous 12 weeks. The Trust should have calculated her holiday pay in this way.
The Trust appealed to the Court of Appeal.
Court of Appeal agrees with EAT
The Trust’s appeal failed. To distinguish Ms Brazel’s working arrangements from other part-time working arrangements, the Court of Appeal categorised her as a “part-year” worker.
It rejected the Trust’s argument that it was necessary to reduce her holiday entitlement as she had worked for only part of the year. While accepting that this could mean some part-year workers are entitled to a higher proportion of their annual earnings as holiday pay, it did not consider this was unprincipled or obviously unfair. It was important to recognise that Ms Brazel was employed on a permanent contract and this was sufficient to entitle her to 5.6 weeks holiday, irrespective of the number of weeks worked. The Trust should have calculated her holiday pay in the usual way, by identifying a week’s pay in accordance with the statutory provisions and multiplying that figure by 5.6.
The term “part-time worker” applies to many types of worker. This ruling only concerns those on permanent contracts who work part of the year (part-year workers). Employers commonly use 12.07% as a basis to calculate holiday pay for casual and irregular hour workers and the ACAS guidance supports this. Whilst the Court of Appeal has ruled that it is unlawful to continue doing this for part-year workers, for now employers can still do this for other types of casual workers.
The Court of Appeal noted its ruling could produce odd results in extreme circumstances (for example a cricket coach working one term in a year or exam invigilators only working during exam periods). However, the Court considered that these workers would more likely be engaged on a freelance basis than a permanent contract and so would not be affected by its ruling.
Schools and colleges and other employers who employ workers on permanent contracts to work part of the year will need to review the way they calculate holiday pay. Continuing to calculate holiday using the 12.07% approach could lead to holiday pay claims, plus claims for underpaid holiday pay going back up to two years. Employment contracts and practices may need to be adjusted to ensure part-year workers are entitled to 5.6 weeks’ paid holiday per year, with no pro-rating to reflect the number of weeks worked.