Under the Working Time Regulations, workers in Great Britain have a right to a minimum of 5.6 weeks' annual leave and are entitled to be paid at the rate of a week's pay in respect of this leave. Holiday pay for workers who do not have normal working hours should, under the Working Time Regulations, be based on average weekly pay in the 12 weeks before the first day of the relevant period of leave. (This reference period will be increased to 52 weeks with effect from April 2020.)
The most common approach to establishing holiday entitlement for permanent employees who do not work for the whole year and are paid only for the hours they work is to pro rate and cap holiday entitlement at 12.07% of annualised hours. It is based on the premise that statutory annual entitlement of 5.6 weeks represents 12.07% of a working year of 46.4 weeks (i.e. 52 weeks minus 5.6 weeks). This follows ACAS guidance, which has now been revised in light of this case.
Mrs Brazel is a music teacher who works at a school run by the Harpur Trust. She works on a permanent zero hours contract and is only paid for the work that she performs, which is typically between 20 and 30 half-hour lessons a week during school term time. During school holidays she gives no lessons, although her contract continued through the year. The school year varied between 32 and 35 weeks. Mrs Brazel is entitled to 5.6 weeks' annual paid leave, which she is required to take during school holidays. The Harpur Trust made three annual payments in respect of her leave in April, August and December and, following the ACAS guidance, calculated her holiday entitlement at 12.07% of her earnings in the preceding term.
Mrs Brazel brought an employment tribunal claim, arguing that the 12.07% approach meant she was underpaid and does not bear any relation to the method of calculation prescribed by the Working Time Regulations. She argued that her holiday entitlement should be based on her average earnings over the 12 week period immediately before a holiday was taken. The employment tribunal dismissed her claim accepting the Harpur Trust's argument that pro-rating is important to ensure full time workers are not treated less favourably and/or to avoid a "windfall" for term-time only workers who, on Mrs Brazel's calculation, would receive a higher percentage of annual earnings as holiday pay than an employee who worked throughout the year. Mrs Brazel appealed to the EAT which upheld her appeal, and the Harpur Trust appealed to the Court of Appeal.
The Court of Appeal agreed with the EAT. It held that Working Time Regulations do not allow for the pro rating approach. The correct approach to holiday entitlement for permanent "part year" workers - i.e. workers who do not work throughout the year – is to assess a week's pay based on the average weekly pay for the 12 weeks before the first day of the relevant holiday and multiply this by 5.6. The Court of Appeal accepted that this may lead to anomalies. An example of such an anomaly is a worker on a permanent contract who only works for one week a year earning say £1,000, but who would then be entitled to 5.6 weeks' notional annual leave for which they would receive £5,600.
WHAT DOES THIS MEAN FOR EMPLOYERS?
This is an important, and potentially expensive, judgment for employers of "part year" permanent workers, not just employers in the education sector.
Employers of part year workers should review their approach to holiday entitlement for these workers to assess whether their approach should change and the best way of limiting liability for claims relating to historic holiday pay.
ACAS has updated its guidance on calculating holiday pay for term time workers to reflect this case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.