You may be aware of an ongoing legal case (‘The Harpur Trust v Brazel’) that concerns the annual leave pay for workers who work part year.
The case was heard by the Supreme Court in November 2021, who have yet to publish their judgment. However, the Court of Appeal has held that holiday pay for permanent staff who only work part of the year, such as term time workers, should be calculated using average earnings over a 12-week period and not pro-rated. (Since the case was brought the 12-week reference period for calculating holiday has been increased to 52 weeks).
Under the Working Time Regulations 1998 (WTR) all workers are entitled to a minimum of 5.6 weeks of paid annual leave. The Regulations dictate that workers should be paid at the rate of a week’s pay in relation to each week of leave.
If workers do not have normal working hours their holiday pay is calculated by averaging their weekly pay over the previous 52 weeks. However, things get difficult when considering permanent members of staff who only work for part of the year, such as casual workers or those with very irregular hours.
Previously ACAS advised that workers in this situation should accrue paid holiday entitlement at a rate of 12.07 per cent of hours worked.
This figure is calculated by taking 5.6 weeks away from 52 weeks to find the standard working year of 46.4 weeks. 5.6 weeks is 12.07 per cent of 46.4 weeks.
In the Brazel case the claimant argued that because she was a worker, within the meaning of the WTR, her holiday should not be pro-rated and she too should be entitled to 5.6 weeks’ paid leave, the same as any worker who works throughout the year.
The Court of Appeal first identified Mrs Brazel as someone who did not work throughout the year and was therefore a ‘part-year worker’. They went on to agree with her claim, outlining that the WTR placed no requirement to pro rata leave entitlements of ‘part-year workers’ to that of ‘full-year workers’.
What does this mean?
Effectively this means that there is no legal basis to pro-rata the 5.6 weeks’ holiday entitlement for part-year workers. Therefore, any permanent workers who work part of the year should receive 5.6 weeks holiday. This means that in practice part-year workers have proportionally more annual leave entitlement than their full-time comparators.
Whilst this may seem unfair, the courts noted that there is a legal requirement to ensure that part-time employees are not treated any less favourably, however there is no such provision to ensure that full-time employees are not treated less favourably.
What do I need to do?
The important factor to consider in this case is that it concerns a part-year worker on a permanent contract.
Employees who are on permanent contracts of employment, where they are required to work part of the year, such as term time work contracts, or other contracts where the employee is required to work a specified number of weeks of the year are likely to be impacted.
Based on the Court of Appeal’s judgment, if you employ term-time workers who have regular hours during the weeks they work, to ensure that they are receiving the minimum statutory paid holiday, the employer should add 5.6 weeks on to the number of weeks the employee is contracted to work during the year, before averaging their pay out into the 12 equal instalments. For example, for an employee who is contracted to work 39 weeks a year, the pay that is averaged over the year must be based on at least 44.6 weeks of work.
I would advise that you review the number of workers that could be impacted by this decision and assess the risks of any potential backdated unlawful deductions claims. (See below).
I would also suggest you review any term time/part-year workers annual leave calculations to ensure that they are receiving 5.6 weeks annual leave entitlement (and pay) and consider current annual leave policies and contractual terms to see if these may need to be reviewed.
It is also worth noting that this case looked at statutory entitlements. Bear in mind that if your annual leave entitlement is more that statutory minimum, then you can pro-rata the contractual element of annual leave to reflect the number of weeks the employee works during the year.
What are the risks?
A complaint where an employer has failed to pay statutory holiday pay would be brought under an ‘unlawful deduction of wages’ claim. The legislation regarding unlawful deduction from wages stems from the worker taking holiday, but not getting paid for it. An unlawful deduction from wages claim must be brought within three months of the last deduction (or series of deductions) and can be for a maximum of two years.
Therefore, many employers are acting now to reduce the possibility of unlawful deduction claims, should the current judgement in Harpur Trust v Brazel stand. This includes employers increasing holiday entitlement to 5.6 weeks and making the relevant adjustments to contracts of employment.
This is a very important case that provides clarity for organisations when calculating holiday pay for part-year workers. This is a Court of Appeal decision and will therefore be taken into account by future tribunals. However, the CIPD advise that employers are urged to act with caution in introducing any permanent changes just yet, pending the outcome of the appeal to the Supreme Court.
For those employers who have increased the annual leave entitlement to 5.6 weeks it may be problematic to reduce this entitlement, should the Supreme Court overturn the previous decision.
The actions you take will depend on the assessment you make on how this judgment is likely to impact your organisation.
If you want to discuss how this case and the current judgment will impact your organisation, please give me a call.