Holiday pay cannot be pro-rated for part-year workers

Holiday pay cannot be pro-rated for part-year workers

HOLIDAY PAY CANNOT BE PRO-RATED FOR PART-YEAR WORKERS

In the case of Harpur Trust v Lesley Brazel v Unison the Court of Appeal overturned an Employment Tribunal’s decision that holiday entitlement should be pro-rated for ‘part-year’ workers. This case is significant because it is likely to have an impact on how many companies and organisations calculate holiday pay entitlement for certain members of their workforce.

 

Background: holiday entitlement calculation

Under the Working Time Regulations 1998 (the “Regulations”), workers are entitled to 5.6 weeks’ holiday per year. Pay for that holiday entitlement is calculated by reference to ‘a week’s pay’, as defined in the Employment Rights Act 1996 (the “Act”). The Act provides that for employees with no normal working hours, a week’s pay is the average weekly pay for the 12-week period before the relevant period of leave.

Acas guidance suggests that if a worker works "on a casual basis or with very irregular hours” annual holiday pay entitlement can be calculated as 12.07% of the worker’s annualised hours. This is because 5.6 weeks’ holiday entitlement is equivalent to 12.07% of the time worked over a year (i.e. 46.4 weeks). This calculation is commonly used by companies who engage seasonal / term-time only workers.

Facts

Mrs Brazel is a music teacher who works at a school run by the Harpur Trust (the “Trust”). She is employed under a permanent zero hours contract. She works almost exclusively during term time, for between 32 and 35 weeks per year. Mrs Brazel is required to take leave during school holidays. The Trust pays Mrs Brazel an amount equivalent to 12.07% of her annualised hours in respect of her holiday.

Mrs Brazel argued that the “12.07% approach” did not bear any relation to the statutory calculation under the Regulations. She argued that her holiday pay entitlement should instead be calculated according to the week’s pay provisions in the Act. On the basis of a 32-week working year, this would result in Mrs Brazel’s holiday pay being 17.5% of her annual earnings. She therefore submitted a claim for unlawful deductions from wages for that difference in pay.

The Employment Tribunal decided that a principle of pro-rating holiday pay should apply. On appeal, the Employment Appeal Tribunal (EAT) disagreed, and held that there is no requirement in the Regulations to pro-rate pay. The Trust appealed.

The Court of Appeal (CA) dismissed the Trust’s appeal, and agreed with the EAT’s approach.

Decision

Looking at European case law, the CA found that there was no requirement on member states to pro-rate the leave entitlement of ‘part-year workers’ (a term used by the Judge in this case) to that of full year workers.

The CA was not persuaded that the higher holiday pay that Mrs Brazel’s calculations would yield is unprincipled or obviously unfair. This was despite the fact that the holiday pay for part-year workers would represent a higher proportion of annual earnings than is the case for full-year workers. Given the wide spectrum of working arrangements, be it part-time, part-year or casual, the CA held that there is an obvious attraction to having the same entitlement for all permanent employees.

The Judge did accept that in extreme cases not pro-rating might lead to odd results. The example was given of a cricket coach, or exam invigilator, who only worked for a few weeks in a year. But, the Court noted, these kinds of people would not normally be on a permanent contract. The CA was therefore unpersuaded that odd results would lead to injustice.

The CA found that the Regulations do not provide for the kind of pro-rating that the Trust argued for, and which underlies the application of the “12.07% approach” for a part-year worker. Attempting to build in a pro-rating principle would not be an exercise in statutory construction, but would instead be substitution of an entirely different scheme. The Regulations require a straightforward exercise of identifying a week’s pay and multiplying by 5.6.

Comment

This important case is a new development in the law on holiday pay. It may lead to an increase in claims from part-year workers, not just term-time workers in schools, for unlawful deduction from wages in relation to their holiday. This could be costly for some employers, despite the fact that any such claim will be limited to deductions in the last 2 years, under the Deduction from Wages (Limitation) Regulations 2014, which was designed to reduce the burden on employers of historic holiday pay claims.

The CA in this case stressed that the decision related specifically to those on permanent contracts and who work for part of the year. The CA underlined that the case was not about part-time workers (who work all year, but only part of a week) and so the CA’s conclusions do not apply to them.

Organisations who employ individuals on a part-year basis would be well advised to assess their potential liability and consider taking advice on their options. Although it is clear that employers should calculate holiday pay on the basis of a week’s pay and multiplying that by 5.6, it is not clear on how the 5.6 weeks’ holiday entitlement itself should be calculated. It may be that many employers will continue to use the 12.07% calculation until further guidance is forthcoming from Acas, the government or from further case law.

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