The Court of Appeal has upheld the EAT's decision that "part year workers" (i.e., someone who does not work a full year, such as a term time worker) on a permanent contract is entitled to a full 5.6 weeks' paid holiday per year. Their holiday pay should be calculated using the statutory calculation for a week's pay, even though this means they receive proportionately more holiday pay than a full year worker. The Employment Tribunal had been wrong to apply a cap of 12.07% of annual remuneration to annual holiday pay.
Workers in Great Britain are entitled to a minimum of 5.6 weeks' holiday under the Working Time Regulations. This 5.6 weeks includes the 4 weeks' holiday entitlement under the EU Working Time Directive. Workers are entitled to a week's pay for each week of holiday calculated in accordance with the relevant provisions under the Employment Rights Act. In respect of workers with no normal working hours, a week's pay, broadly speaking, is the weekly average of all sums paid in the previous 12 weeks (excluding any weeks for which no remuneration is payable) although this will increase to looking back at the previous 52 weeks from April next year.
ACAS' "Holiday and Holiday Pay" guidance booklet states:
"What leave do casual workers get? If a member of staff works on a casual basis or very irregular hours, it is often easiest to calculate holiday entitlement that accrues as hours are worked. The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year. The 12.07 per cent figure is 5.6 weeks' holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks). The 5.6 weeks are excluded from the calculation as the worker would not be at work during those 5.6 weeks in order to accrue annual leave. So if someone works 10 hours, they are entitled to 72.6 minutes paid holiday (12.07/100 x 10 = 1.21 hours= 72.63 minutes)."
The Court of Appeal in the present case observed that this appears to relate to casual workers, who are not retained by the employer between periods of work.
The Claimant is a music teacher who is employed by a school on a permanent contract on a zero hours contract. She is paid only for the lessons she gives during term time (typically around 32-35 weeks per year) and the school has no obligation to give her a minimum level of work. She is entitled to 5.6 weeks' holiday a year, which she is required to take during school holidays. As school holidays are far longer than this, they agreed that she would be paid 3 equal instalments in respect of her holiday pay at the end of each term. However, they disagreed on the rate that she would be paid. The school paid her an amount equal to 12.07% of her earnings during that term but she argued that this was incorrect and that she should instead be paid (over the year) for 5.6 weeks' holiday based on the calculation of a week's pay in the Employment Rights Act (the weekly average of all sums paid in the previous 12 weeks for which she received pay). Assuming she worked 32 weeks in a year (and that her average pay did not vary, this would mean her holiday pay would equate to 17.5% of her annual earnings, compared to 12.07% for a full year worker.
The Employment Tribunal dismissed her claim ruling that her entitlement should be subject to a pro-rata reduction which would cap her annual holiday pay entitlement to 12.07% of her annual earnings. However, the Employment Appeal Tribunal upheld her appeal.
Court of Appeal decision
The Court of Appeal agreed with the EAT that the Claimant's holiday pay was not subject to a pro-rata deduction. The Court rejected the school's arguments that the Claimant's holiday/holiday pay entitlement must be pro-rated as that was a requirement of EU law and because it would otherwise produce obviously unjust results which cannot have been intended under domestic law.
The Court accepted that the Working Time Directive might require only that workers should accrue entitlement to paid holiday in proportion to the time that they work (referred to as the "accrual approach") with the result that part-year workers are not entitled to the full four weeks' holiday entitlement under the Working Time Directive. However, the Court considered that the Working Time Directive only stipulates minimum rights and that Member States are allowed to provide more favourable entitlements so there is no requirement under EU law to apply a pro-rata deduction for part-year workers.
The Court also accepted that whilst it may seem surprising that the holiday pay to which part-year workers are entitled represents a higher proportion of their annual earnings than in the case of full-year workers, that did not mean to say that this is unprincipled or obviously unfair. There may be some extreme atypical part-year workers who may appear to receive a windfall, for example, an exam invigilator who only works one exam season a year, but that is not sufficient to require the application of the pro-rata principle generally. The calculation method set out in the Working Time Regulations and Employment Rights Act is straightforward; attempting to build in a pro-rating requirement or an accrual system would mean substituting an entirely different scheme.
The effect of the decision is generous for part-year workers. The Court of Appeal considered an extreme example of a permanent employee who worked for only one week of the year and earned £1,000 for it, who would then be entitled to 5.6 weeks' notional annual leave for which they would receive £5,600. However, the Court of Appeal observed that it would be unusual for someone with such a working pattern to be on a permanent contract and held that, in any event, such anomalies could not lead to a different interpretation.
Employers who engage part-year workers who are engaged on permanent contracts should review their holiday pay arrangements and consider whether any changes need to be made in light of this decision.
The Court of Appeal emphasised that this decision is only relevant to part-year workers engaged on permanent contracts and does not determine the position of workers engaged on a separate contract for each assignment or permanent part time workers who work throughout the year.
Brazel v The Harpur Trust, Court of Appeal