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02 October 2019
The Court of Appeal has held that holiday entitlement and pay for workers on permanent contracts should not be prorated to reflect the fact that they work on a part-year basis.
Lesley Brazel was engaged by The Harpur Trust,(1) which runs Bedford Girls' School, on a permanent zero-hour contract as a part-year visiting music teacher. She worked variable hours to cater for the changing number of pupils requiring tuition each week. However, she typically gave between 20 and 30 30-minute lessons each week together with some ancillary duties, some of which were remunerated separately.
Brazel worked during term times only, the length of which varied from between 32 and 35 weeks per year. She gave no lessons during the school holidays, nor did she perform any other substantial duties. She was paid an agreed hourly rate each month based on the hours that she had worked in the previous month. Considering this, the court termed her a part-year worker (as opposed to a full-year worker).
Brazel was entitled to 5.6 weeks' holiday each year under both her employment contract and statute. She took that annual leave during the three school holidays when she was not teaching and the trust made payments for her leave at the end of each school term.
In line with common practice, the trust calculated Brazel's pay for each holiday as one-third of 12.07% of her earnings in the previous term. The Advisory, Conciliation and Arbitration Service (Acas) recommends this method when calculating casual workers' holiday pay because an annual holiday entitlement of 5.6 weeks is equivalent to 12.07% of hours worked during the year (5.6 weeks divided by the 46.4 working weeks when accruing holiday entitlement (52 weeks minus the 5.6 weeks of holiday)).
Brazel brought an unlawful deduction from wages claim on the basis that she had been underpaid for her holiday. The Working Time Regulations 1998 state that one week's holiday pay should be calculated in accordance with certain provisions of the Employment Rights Act 1996. These set out that one week's pay for someone who works irregular hours should be calculated as the average of the 12-week period immediately preceding a holiday. In making this calculation, no account is taken of any weeks when nothing is payable.
This alternative calculation would result in Brazel receiving a higher percentage of her annual earnings as holiday pay than full-year employees because the calculation would focus on her term-time salary (ie, the 12 weeks before her holiday). Therefore, the trust argued that her holiday pay should be prorated to reflect the fact that she had worked fewer weeks in a year than a full-year employee.
The employment tribunal agreed with the trust and held that Brazel's entitlement to holiday and holiday pay should be prorated to reflect that she had worked only during term time.
The Employment Appeal Tribunal (EAT) overturned this decision on the basis that there was no requirement in the legalisation to prorate a permanent part-year worker's holiday entitlement.
The trust appealed to the Court of Appeal.
The Court of Appeal dismissed the trust's appeal. It agreed with the EAT that there was no need to create a system of prorating holiday entitlement when UK domestic legislation made no provision for it.
Looking first at the EU directive, which is the source for the UK law on holiday, the court accepted that it provides that workers accrue holiday in proportion to the time that they work and holiday entitlement can be prorated to reflect this. However, a member state is entitled to provide more favourable provisions for workers if it wishes to.
Turning to domestic law, the court noted that while it may seem strange that a part-year worker could be entitled to a higher percentage of their annual salary for holiday pay than a full-year worker, this was not obviously unfair (nor was it unlawful). The court held that as there was no provision in the legislation for prorating holiday pay in these circumstances, to do so would not simply be an exercise in statutory construction but would mean adopting an entirely different scheme.
The trust accepted that this approach could lead to anomalies. For instance, in the case of a school invigilator who was a permanent employee but worked for only a few weeks during exam season each year. According to this judgment, that worker would be entitled to 5.6 weeks of (notional) annual leave each year for which they would receive well in excess of remuneration paid for the weeks actually worked. The court recognised this issue but held that general rules can result in the odd anomaly when applied to unusual cases. In reality, it is unlikely that a worker needed for only a few weeks a year would be on a permanent contract. In the court's view, there was no need to apply a prorating principle to deal with this remote possibility.
This case illustrates what a complicated business it can be to calculate holiday pay for part-year workers. Before this decision, the standard approach (supported by the Acas guidance on holiday pay for casual workers) was to do as the trust did in this case. The Court of Appeal has now confirmed that this does not comply with the law. Presumably, Acas will at some point update its guidance to reflect this decision.
Workers can use deduction from wages claims to recoup wages owing for the two-years preceding the claim. This decision leaves employers at risk of workers claiming for underpaid holiday pay for that period. If an employer has several employees working under a similar arrangement, this may represent a significant financial cost.
Employers using set percentages to calculate holiday pay should consider auditing their workers on permanent contracts to ensure that these fixed rates do not result in them receiving less than their statutory entitlement.
Finally, the Court of Appeal clarified that this judgment applies only to employees on permanent contracts. However, future decisions may extend the same reasoning to employees working under temporary arrangements.
For further information on this topic please contact Emma Langhorn at Lewis Silkin by telephone (+44 20 7074 8000) or email (firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.
(1) Brazel v The Harpur Trust – judgment is available here.
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