The Supreme Court has ruled that employees that only work for part of the year, such as term-time workers, are entitled to the same holiday pay as colleagues working all year.
Employment law experts say the judgment in The Harpur Trust v Brazel will have significant financial repercussions for employers with people working part of the year on permanent contracts, especially those in the education sector.
The case involved Ms Brazel, a music teacher who works at a school during term time, who believed her holiday pay should by calculated using her average earnings over a 12-week period and not pro-rated.
She argued that she lost out after the school she worked at changed the way it calculated her holiday pay in 2012. It calculated her earnings at the end of each term, took 12.07% of that figure, then paid Brazel her hourly rate for that number of hours as holiday pay. That 12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year of 46.4 weeks.
This method of calculating casual workers’ holiday pay is widely used and was recommended in Acas guidance, which has since been rewritten.
Holidays and holiday pay
However, Brazel claimed this method was not compliant with the working time regulations. She believed that holiday pay should be calculated by taking the average weekly remuneration for the 12 weeks prior to the calculation date and multiplying it by 5.6.
In 2015, an employment tribunal dismissed her case, ruling that The Harpur Trust had applied the correct method of calculating holiday pay. However, this was overturned by the Employment Appeal Tribunal, which ruled in Brazel’s favour.
The Trust then took an appeal to the Court of Appeal in 2019, which found that the working time regulations did not require leave for term-time workers to be reduced pro rata. It said holiday pay should be calculated using their average earnings over a 12-week period.
Today (20 July) the Supreme Court unanimously ruled in Brazel’s favour and found that she should receive the same holiday pay as staff who work all year round.
The Supreme Court identified multiple problems with the Harpur Trust’s proposed alternative calculation methods, stating they were directly contrary to the statutory method set out in the working time regulations. It said its methods would require employers to keep detailed records of every hour worked, even if employees were not paid an hourly rate.
Employment law reaction
Employment lawyers have suggested this will remain a complicated area for employers.
The ruling may seem illogical and inequitable, with employers finding it difficult to explain to their full-year workers why a colleague who works only part of the year is entitled to the same holiday entitlement.” – Kerry Garcia, Stevens & Bolton
Joanne Moseley, an employment lawyer at Irwin Mitchell, said: “This is a significant decision and will be a blow to many thousands of employers across the UK who, up until now, have pro-rated holiday entitlement to reflect the number of weeks employees work each year.
“Many employers have adopted a ‘wait and see’ approach but we’re now at the end of the road. We’ve seen that organisations have been caught out by previous holiday pay rulings and this one is sure to place a significant financial burden, which could run into millions of pounds, for many.”
Many employees might see the decision as unjust, suggested Kerry Garcia, head of employment law at Stevens & Bolton.
“The ruling may seem illogical and inequitable, with employers finding it difficult to explain to their full-year workers why a colleague who works only part of the year is entitled to the same holiday entitlement,” she said. “It will also be difficult to explain to a part-time worker who works the same number of hours in total as a part-year worker, but spread across the whole year, why they are entitled to less holiday than the part-year worker. Employers will need to manage any friction proactively and with sensitivity.”
Anna Sella, managing associate at Lewis Silkin said this is an area “ripe for legislative reform”.
“In the meantime, employers may wish to reconsider the circumstances in which they make use of permanent contracts for certain types of workers,” she said.
Could an agency worker, who has just completed a three-month stint, and traditionally built up around 1.5 weeks holiday pay, now have an extra four weeks paid to them, simply by stopping work? Was that really the underlying intention of the Working Time Regulations?” – Dave Chaplin, IR35 Shield
Dave Chaplin, CEO of tax compliance firm IR35 Shield said: “This is a curious anomaly in the law, whereby a worker who has not earnt the full entitlement to 5.6 weeks holiday pay could still have it owed to them, simply by working full-time for 12 weeks. For temporary workers on zero hours contracts, agency payroll, or via umbrella companies, it begs the question: where is this money going to come from?
“Could an agency worker, who has just completed a three-month stint, and traditionally built up around 1.5 weeks holiday pay, now have an extra four weeks paid to them, simply by stopping work? Was that really the underlying intention of the Working Time Regulations? Umbrella companies and agencies are now going to need to adjust how they operate, to ensure they can correctly operate within the law.”
Leslie Rennie, senior employment solicitor at WorkNest, said employers would need need to assess their historic liability and decide whether to make a back payment in respect of any holiday pay underpayments.
“Employers should be mindful that if this case is widely reported, employees are more likely to be aware of it and assert their rights,” said Rennie.
“In making their assessment, employers will need to give thought to how far back a particular worker may be able to claim in respect of historic underpayments. But generally, where a worker brings an unlawful deduction from wages claim based on a series of deductions from an ongoing pattern of incorrect holiday payments, an employment tribunal can only look back at the two years preceding the unlawful deduction from wages claim being brought.”