Part-year workers entitled to the same holiday pay as colleagues working all year 

The long-awaited judgment in The Harpur Trust v Brazel [2022] UKSC 21 will have serious financial repercussions for employers with people working part of the year on permanent contracts, especially those within the education sector.

Background

The case involved Ms Brazel (B), a visiting music teacher who worked at a school run by The Harpur Trust (the Trust) during term time, who believed that her holiday pay should be calculated using her average earnings over a 12-week period and not pro-rated.

B argued that she was being underpaid by the school she worked at, which calculated her earnings at the end of each preceding term, took 12.07% of that figure, and then paid B her hourly rate for that number of hours as holiday pay. That 12.07% is the proportion that 5.6 weeks of annual leave (which full-time workers are entitled to under the Working Time Regulations 1998 (WTR 1998)) bears to the total working year of 46.4 weeks.

This method of calculating casual workers’ holiday pay is widely used and was in line with the Advisory, Conciliation and Arbitration Service’s (ACAS) guidance, which has since been revised.

B claimed this method was not compliant with the WTR 1998. She claimed that holiday pay should be calculated in line with s224 of the Employment Rights Act 1996 (ERA 1996) for workers without normal working hours. This involved taking her average earnings over the preceding 12 weeks, which would result in holiday pay of around 17.5% of her earnings for the term. 

(Note that, with effect from 6 April 2020, the calculation of a week’s pay under s224 ERA 1996 involves taking average earnings over the preceding 52 weeks). 

There was nothing in the relevant provisions requiring a different approach where the worker does not work a full year. Relying on the WTR 1998, B claimed unauthorised deductions from wages for the difference. She also brought a distinct claim asserting less favourable treatment on the grounds of part-time status.

Back in 2015, an Employment Tribunal originally dismissed B’s case, finding that the Trust had correctly applied the method of calculating holiday pay. In respect of the WTR 1998 claim, it accepted the Trust’s argument that a part-time worker who works for only part of the year should have his or her holiday entitlement pro-rated to reflect the weeks that he or she actually works, so that full-time workers are not treated less favourably and/or to avoid a ‘windfall’ for term time only workers. 

The Tribunal therefore read words into Reg 16 WTR 1998 (which incorporates the definition of a week’s pay under s224 ERA 1996) to the effect that, where a worker has no normal hours and works fewer than 46.4 weeks per year, holiday pay should be capped at 12.07% of annualised hours.

The Employment Appeals Tribunal allowed B’s appeal against that decision. The Tribunal should have applied the straightforward calculation prescribed by Reg 16 WTR 1998 and s224 ERA 1996. There was no requirement in the WTR 1998 to pro-rata holiday pay for part-time employees to ensure that full-time employees are not treated less favourably. 

The Trust then unsuccessfully appealed to the Court of Appeal in 2019, finding that the WTR 1998 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. The calculation exercise required by Reg 16 WTR 1998, which involves identifying a week’s pay and multiplying it by 5.6 weeks, is straightforward and should be followed, even if it results in part-year workers receiving a higher proportion of their annual earnings as holiday pay.

Upon appeal to the Supreme Court, the Trust argued that the amount of annual leave (and therefore holiday pay) should reflect the amount of work that B actually performed. In other words, the leave requirement for part-year employees should be pro-rated to allow for the weeks in which they are not required to work.

The decision

On 20 July 2022, the Supreme Court unanimously ruled in B’s favour and found that she should receive the same holiday pay as staff who work all year round.

It was not enough for the Trust to show that the Court of Appeal’s interpretation leads to the part-year worker receiving disproportionately more paid leave than other workers. Given that a more generous entitlement for part-year workers does not infringe either the European Working Time Directive or the Part-time Work Directive (No.97/81), the issue was one of statutory interpretation.

The Supreme Court identified multiple problems with the Trust’s proposed alternative calculation methods, stating they were directly contrary to the statutory method set out in the WTR 1998. It said its methods would require employers to keep detailed records of every hour worked, even if employees were not paid an hourly rate.

Comments and employer considerations

This will remain a complicated area for employers and one that most will struggle to find the logic in.

The decision is far-reaching and has significant implications for employers in terms of identifying retrospective liability for historic underpayments of holiday pay. 

However, where a worker brings an unlawful deduction from wages claim based on a series of deductions from an ongoing pattern of incorrect holiday payments, they are entitled to claim for two years preceding the unlawful deduction from wages claim being brought. 

Employers will have to think carefully and assess their next steps as the approach to date has very much been ‘wait and see’. With this decision, it lays the foundation upon which many employers will have to base their business decisions in engaging part-year casual workers and how they will manage with sensitivity the animosity that is likely to arise on this issue between full-time and part-time casual staff.