Employers should not pro-rate holiday for “part-year” workers

Employment / 28 August 2019

In Harpur Trust v Brazel, the Court of Appeal (“CA”) has held that the holiday entitlement of workers on permanent contracts who only work part of the year (“part-year” workers) should not be pro-rated to that of full-year workers.

This decision will impact many employers, most particularly those in the education sector.

Issue

Ms Brazel was a music teacher engaged on a term time only zero hours contract.  She was entitled to 5.6 weeks paid holiday per year.

At the end of each term, the Trust paid her holiday pay at the rate of 12.07% of her earnings that term (12.07% being a common formula used in the calculation of holiday entitlement for workers with no normal working hours).  Ms Brazel argued that the 12.07% approach was wrong – she said her holiday entitlement should have been calculated using the reference period set down in the Working Time Regulations 1998 (“WTR”) by calculating her average earnings in the 12-week reference period immediately before the holiday was taken.  This would have meant she received a higher rate (17.5%) of holiday pay.

Ms Brazel brought a claim for unlawful deductions from wages (amongst others).

The Employment Tribunal dismissed her claim but the EAT upheld her appeal and the Trust appealed to the CA.

Key Dates

The CA decision was handed down on 7 August 2019.

Impact

The CA looked at two distinct points:

1. Should part-year workers have their holiday entitlement pro-rated to reflect the fact that they do not work throughout the year?The answer here was “no”.  Part-year workers must receive at least 5.6 weeks holiday.  This should not be pro-rated because the WTR do not contain a pro-rata principle.  The only time that holiday accrues on a day to day basis is during the first year of employment.
2. How should part-year workers’ holiday pay be calculated?Holiday pay should be calculated based on a 12-week average of hours worked (not by using the 12.07% approach).

The CA acknowledged that the answer at point 1 may give rise to some “odd results” in “extreme cases” – for example, where an exam invigilator under a permanent contract who only works for a few weeks a year would be entitled to 5.6 weeks holiday pay.  However it said that this was still fair:  “employers who choose to retain on permanent contracts workers whom they could have engaged freelance, because doing so has particular advantages, should have to accept the additional costs that come with that choice”.

Action

This case only applies to workers engaged for part of the year under permanent contracts.  It is not concerned with part-time workers.

We anticipate that more part-year workers will bring claims in this area, and these may not be limited to the education sector.  Since 2014, any such claims will be limited to unlawful deductions made in the last two years.

Employers who currently use the 12.07% approach to pay holiday to zero hours staff with permanent contracts should take advice on the potential liability and carefully consider their options.

Note that the 12-week reference period referred to above will change to a 52 week period from April 2020 (although this would not have had a material impact in this case since weeks where no work is done are discounted under the WTR).