On 6th August the Court of Appeal upheld the decision of the Employment Appeal Tribunal from 6th March 2018 in the case of Brazel v The Harper Trust. The Court of Appeal considered whether the holiday entitlement of part-year workers on permanent contracts should be prorated to that of full year workers to reflect the fact that they do not work throughout the year.
The Claimant, Ms Brazel, was a part-time music teacher working mostly during term time.
She was engaged on a ‘zero hours’ contract and had a contractual right to 5.6 weeks holiday pay, mirroring her statutory right. Rather than calculating the basis for holiday pay by the methodology set out in section 224 Employment Rights Act 1996, the Respondent calculated it on the basis of 12.07% of her total pay over a year.
The Trust’s case was that the statutory entitlement to 5.6 weeks holiday pay per annum should, in the case of an employee who works during fewer weeks than a “standard” 46.4 week working year (i.e. 52 weeks less 5.6 weeks statutory leave) be pro-rated so that the entitlement to holiday pay is based on the number of weeks actually worked as a proportion of 46.4 weeks. In the present case, a school year varies and can be between 32 and 35 weeks long.
The percentage figure of 12.07% is commonly used by employers to calculate rolled up holiday pay as it provides an employee who works 46.4 weeks per year with an additional 5.6 weeks’ pay to cover the statutory holidays. The percentage is contained in the non-statutory ACAS leaflet ‘Holidays and holiday pay’. Government guidance to the same effect has been deleted.
The percentage is calculated as follows:–
5.6 divided by 46.4 x 100 = 12.07%
The School argued that the holiday entitlement should be pro-rated for part time workers as follows:-
Weeks worked Weeks holiday
32 weeks is 0.69 of 46.4 3.86
33 weeks is 0.71 3.98
34 weeks is 0.73 4.09
35 weeks is 0.75 4.2
46.4 weeks 5.6
This approach appears to make sense, on the basis that a full time employee is entitled to a statutory minimum of 5.6 weeks holiday, therefore, why should a part time employee be entitled to the same?
However, the approach was rejected by the Employment Appeal Tribunal who stated:-
41. Having considered the provisions and authorities cited to me on behalf of the Respondent, which I have set out at length, I can state my conclusion very shortly. I am unable to distil from them any support for the proposition accepted by the ET that there is a requirement to carry out an exercise in pro-rating in the case of part-time employees, so as to ensure that full-time employees are not treated less favourably, or to avoid a “windfall” for term-time only workers.
42. The exercise which the ET had to carry out was a relatively simple one. The Claimant’s entitlement to holiday pay was set out clearly in her contract, but in any event mirrored her statutory right. As someone working irregular hours, the straightforward application of section 224 of the Employment Rights Act 1996 enabled a week’s pay to be computed in a simple and straightforward manner.
43. It is true that the application of section 224 may have its anomalies, such as to favour someone who does not work throughout the year, but I cannot see how that justifies either words being read into the WTR, as the ET found at paragraph 98 of the Reasons, nor (its secondary conclusion at paragraph 99) that the entitlement to 5.6 weeks’ pay should be prorated. Indeed, I simply do not understand the rationale for the pro-rating.
44. In my judgment the ET, in its conclusions, overlooked the overriding principle that part time workers are not to be treated less favourably than full-time workers. There is, as yet, no principle to the opposite effect. To impose a limitation which reads down primary legislation – those sections of the ERA which enable a week’s pay to be computed – to the disadvantage of part-time workers, ostensibly to redress a potential grievance that might be brought by full-time workers is, in my judgment, to stand the logic and purpose of the Directive and the domestic statutory scheme on its head.
The conclusion, therefore, is that holiday pay for workers with irregular hours should not be calculated by reference to a percentage but based on the definition of a week’s pay contained in Section 224 of the Employment Rights Act 1996.
On 6th August the Court of Appeal dismissed the appeal of Harpur Trust and upheld the decision of the Employment Appeal Tribunal.
In the Court of Appeal, Underhill LJ acknowledged that it may at first sight seem surprising that the holiday pay to which part-year workers are entitled represents a higher proportion of annual earnings than in the case of full-year workers. However, he was not persuaded that this was unprincipled or obviously unfair. It was important that the workers in question were on permanent contracts. It was not unreasonable to treat that as a sufficient basis for fixing the amount of holiday entitlement, irrespective of the number of hours, days or weeks that the workers might in fact have to perform under the contract; the actual days from which they would be relieved, and the amount of their holiday pay, would reflect their actual working pattern.
Furthermore, if it were necessary to assess the proportion of “full-year hours” that a part-year worker had worked during the year, the calculation of holiday entitlement would involve difficult factual questions. How, for example, would an employer identify what would count as full-year hours? And how would you know how many weeks the worker would have worked in that leave year? This might be clear in the case of schools, but not necessarily so for other types of employment. In particular, it would be impossible to calculate a worker’s accrued leave entitlement until the end of the leave year, which would create problems when assessing a payment in lieu of unused leave if the employment was terminated during the course of the leave year. Given the wide spectrum of working arrangements, be it part-time, part-year or casual, there is an obvious attraction to having the same entitlement for all permanent employees.
The Court accepted that this approach would lead to odd results in the “extreme” cases such as those of the cricket coach or exam invigilator but said that general results sometimes do produce anomalies. Further, it would be unusual for those who work for only a few weeks a year to be on a permanent contract. Even if that were the case, for example in schools where the criminal records check requirements are less onerous in the case of permanent employees, that is not sufficient to require the application of the pro rata principle more generally. Underhill LJ did not consider it unjust that employers who choose to retain staff on permanent contracts because of a particular advantage that confers, bear the additional costs that come with that choice. In any event, the pro rata principle might itself lead to unfair results in other ways; is it right that a worker who works a five-hour day should receive only 3.5 weeks’ holiday pay (5.6 x 5/8)?
Definition of a week’s pay in Section 224 of the Employment Rights Act 1996
Section 224 of the Employment Rights Act 1996 sets out the calculation to be used for employees who work irregular hours as follows:-
1. The average earnings over a 12 week period, immediately before leave is taken.
2. In arriving at the average weekly remuneration no account should be taken of a week in which no remuneration was payable by the employer.
3. Earlier weeks should be brought in so as to bring the number of weeks to be taken into account to twelve.
Note that from 6 April 2020, the 12-week reference period used to calculate statutory holiday pay will be extended to 52 weeks, or the number of complete weeks for which the worker has been employed, if less than 52 weeks, by virtue of the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 (SI 2018/1378).
Although the principle only applies to holiday entitlement and pay for those on permanent contracts, given the widespread reporting of the judgment, it is likely that it will lead to a further flood of part-year employees raising the issue of their holiday pay and potentially bringing claims. It is unlikely that this will be limited to just those working in schools. Any such claims will of course be limited to unlawful deductions made in the past two years (by virtue of the Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322), but could be costly given that those who work only a small part of the year could be entitled to a high proportion of their annual earnings in holiday pay. Although Underhill LJ was careful to emphasise the importance of the existence of a permanent contract in his deliberations, it could potentially pave the way for casual workers not employed on a permanent contract to seek to run the same argument that their holiday pay should also not be subject to the 12.07% cap. Whether this would succeed remains to be seen. Underhill LJ also underlined that the case was about part-year workers, and not part-time workers in the sense that they only work part of a week, and so the conclusions are also inapplicable to part-time but full-year workers.
Employers who currently use the 12.07% approach to pay holiday to their zero hours staff with permanent contracts should analyse their potential exposure and consider their options. It is clear that holiday pay should be calculated by assessing a week’s pay and multiplying that by 5.6. How the 5.6 weeks’ holiday entitlement itself should be calculated for such workers (particularly those who do not work term-time only and who take enough leave to satisfy the WTR 1998 in any event), is still not clear. We anticipate that Acas and www.gov.uk will be updating its guidance, although we are not aware of when any such new guidance would be published. Employers will have to take a pragmatic approach and we expect that many will continue to use the 12.07% approach to calculating the holiday entitlement until further case law provides more clarity.
Harpur Trust v Brazel  EWCA Civ 1402 (06 August 2019) (Underhill, Hamblen and Moylan LJJ).