The Supreme Court has upheld the decision of the Court of Appeal and EAT in Brazel v The Harper Trust that employers must calculate paid holiday entitlement for part-year (eg term-time only) workers on permanent contracts without pro-rating the full-time entitlement to reflect weeks not worked. The Working Time Regulations (WTR) do not permit employers to cap entitlement at 12.07% of annualised hours (as previously suggested in Acas guidance), even though this may mean part-year workers get proportionately more paid holiday than full-time and part-time full-year workers. Alternative methods of calculation suggested by the employer as compliant with the EU Directive implemented by the WTR were rejected as being contrary to the express wording of the WTR; EU law does not prevent the WTR making more generous provision.
All workers are entitled to 5.6 statutory weeks’ holiday each year. Where an individual’s normal weekly hours vary (including a simple variation between weeks on and weeks off at different times of the year), employers must average holiday pay over the 52 weeks reference period (this was increased from 12 weeks in April 2020) immediately before the holiday. Crucially, weeks in which there was no pay must be ignored, extending the averaging period back to bring the total up to 52 weeks. Workers who work less than 46.4 working weeks in the year must still receive 5.6 weeks of holiday paid at the average rate of pay they receive when working.
As the Court acknowledged, this could give rise to absurd results where an individual is on a permanent contract to work only a handful of weeks a year. Fixed term contracts may be more appropriate in these cases, although legal issues can arise with the use of successive contracts and advice should be taken before moving to this approach.
The case is important for employers who engage workers on a permanent contract to work only during certain times of the year (whether term time only, seasonal or on some other periodic basis) or who in practice have non-working weeks on a zero hours contract. Employers who still use the annualised 12.07% approach for such workers will need urgently to review their holiday pay practice and potential liability for historic claims.