This case has been going through the legal system for the past seven years and on 20th July 2022 the Supreme Court confirmed the previous Court of Appeal’s judgment in this matter.
This case involved a very specific set of circumstances but has implications for all workers on variable hours and those who work part year, and is a case of critical importance in the matter of holiday pay and leave calculation.
This involved a music teacher (Brazel), employed on a permanent, zero-hours term-time basis. She was required to work during term-time (only), and her hours would vary in accordance with pupil needs. She had to take her holiday outside of term time, and the method the school used to calculate this is what has become called the “percentage method”. Essentially, the school would calculate 12.07% of her hours each term, and pay her at her hourly rate for resulting hours in the subsequent holiday period. Brazel argued that this was not correct and that she should be paid based on her average hours over 12 weeks in which she has worked (as was required at the time of the case. Now a 52-week average should be applied). As her employer disagreed with this, a claim was raised. The Employment and Appeal Tribunal The tribunal dismissed her claim, finding that the school had calculated her holiday pay correctly by applying the pro-rating principle, which was in accordance with the Working Time Regulations 1998. The claimant appealed to the Employment Appeal Tribunal (EAT), who ruled in her favour. They found that section 224 of the Employment Rights Act 1996 provided a simple and straightforward method of calculating pay for irregular workers (i.e. over a 12-week reference period). In forming their decision, the EAT held that although part-time workers could not be treated any less favourably than full-time workers, the WTR did not provide any requirement to pro-rata holiday pay for part-time part-year employees to ensure that full-time employees were not treated any less favourably. The Court of Appeal (CoA) The employer appealed to the CoA. They argued that it was necessary to reduce the claimant’s holiday entitlement to avoid unjust results, as the approach of the would result in other workers on zero-hour contracts who worked for lesser proportions of the year, such as a school cricket coach, being entitled to holiday pay exceeding that of a full-time staff member. The CoA dismissed this. They outlined that the Working Time Directive (WTD) only requires workers to accrue annual leave in proportion to the time they work, something the Court labelled the ‘accrual approach’. However, this does not apply to remuneration for that leave. The WTD therefore placed no requirement on member states to pro-rata leave entitlements of ‘part-year workers’ to that of ‘full-year workers’. The Court did accept that this ruling could lead to odd results in ‘extreme cases’, such as the school cricket coach example mentioned earlier, but concluded that it would be unusual for an individual who only worked a few hours a year to be on a permanent contract, and that this was not ‘unprincipled or obviously unfair’. The Supreme Court Essentially, they agreed with the CoA. Specifically, they said: “In short, the amount of leave to which a part-year worker under a permanent contract is entitled is not required by EU law to be, and under domestic law is not, pro-rated to that of a full-time worker." In simple terms, the relevant provisions in the legislation relate to the amount of time someone is actually in work (under a contract or agreement to work), not to the amount of work they actually do. What does this mean for holiday calculations? This means now that the use of 12.07% of a worker’s hours should not be used, as this can leave some worse off. Instead, all workers should have their holiday pay calculated based on their average earnings over the previous 52 working weeks, and all workers will get 5.6 weeks leave. The only circumstances where an employer can pro-rata someone's holiday is when they start or leave employment part-way through the leave year. For example if a casual, or zero hours, worker starts and leaves their employment during the leave year. Leave doesn't accrue over the year. Everyone is entitled to 5.6 weeks holiday from day one. However, if a worker starts employment part-way through the year, the regulations provides their leave is "deemed to accrue" at a rate of one twelfth of the 5.6 weeks for each month worked. What does this not mean? To clarify, this does not change the position for part-time workers, just part-year workers. Part-time workers who work a full 52 weeks of the year but for less hours or days than their full-time colleagues, can continue to have their holiday calculated pro-rata. It also does not change the position for fixed term employees, whose holiday can continue to be calculated pro-rata for the duration of the contract. Key points:
This case impacts the holiday pay and calculations for those workers who have a continuing contract of employment throughout the year, but don’t work every week of the year e.g. term time workers or zero hours workers who work throughout the year.
There is no change for part-time workers who work every week of the year under a contact of employment.
If the employee is truly zero hours, then the employer is able to end their employment and pay the holiday leave accrued. If the person were to re-start employment their employment a new holiday accrual would begin.
Anyone who has received less than 5.6 weeks holiday will be able to bring a claim against you to recover the amounts they have been underpaid.
This decision doesn't mean that you will be liable for all underpayments. There are various legal arguments that you can deploy to limit your liability - in many cases to your current leave year. Plus, the Deduction from Wages (Limitation) Regulations 2014, limits how far back an employee can go when claiming a series of deductions to two years from the date the claim is presented. As a rule of thumb, therefore you will need to work on the basis that you could be liable for up to two year's underpayments for your staff.
If you would like any advice on holiday leave, or holiday pay, please contact me.