Court of Appeal Determines How to Calculate Holiday for 'Part Year' Workers

This, as well as the use of the 12.07% multiplier as a way of meeting holiday pay entitlement, is what the Court of Appeal considered in a case that has far reaching implications across many sectors.

Harpur Trust v Brazel

Mrs Brazel is employed as a music teacher on a permanent contract. She works term time only and her hours of work are dictated by pupil demand. Her hours and pay vary according to this.

She wasn't required to work in school holiday periods and she was paid in respect of her holiday pay three times a year at the start of each of the main holiday periods. The employer calculated this based on hours worked by Mrs Brazel in the preceding term and using the multiplier of 12.07%.

12.07% is a methodology suggested by ACAS in their guidance Holidays and Holiday Pay. All workers are entitled under the Working Time Regulations 1998 to 5.6 weeks' paid leave in each year. The 12.07% methodology equates to 5.6 weeks holiday/46.4 working weeks (so pro-rating from a full time 52 weeks per year contract).

Is the 12.07% Methodology Compliant with the Law?

The argument before the courts was whether the use of 12.07% met the requirements of UK legislation as set out within the Working Time Regulations.

The Working Time Regulations state that all workers are entitled to 5.6 weeks' leave each year. Although the European Directive from which the UK rights were implemented would allow some form of pro-rating (as has been established in European case law), that had not been expressly adopted in the UK Working Time regulations.

Accordingly, the argument put forward by Mrs Brazel was that she should be entitled to 5.6 weeks' leave a year even though she only worked during term time.

Mrs Brazel also argued that because she had no normal working hours, the amount she should be paid for her holiday should be calculated by averaging her pay  over the 12 weeks actually worked immediately prior to the relevant holiday being taken (discounting any weeks where there was no pay at all), rather than using the 12.07% multiplier.

The Court of Appeal's Decision

The Court of Appeal agreed with Mrs Brazel that technically this was the case. This means that someone who is employed under a permanent contract but only works for part of the year should receive the same holiday entitlement as an individual who works all year round.

They also receive a proportionately higher rate of pay for their holiday than full year workers.

What Does This Mean for My Organisation?

This judgement potentially affects:

• Any worker who has a permanent employment contract and is employed throughout the year but only actually works for part of the year (such as term time workers).
  
  
• Any worker who works irregular hours, whose holiday pay entitlement has been calculated using the 12.07% (or similar) multiplier.

If the Harpur Trust is granted leave to appeal to the Supreme Court and is successful, it is possible that the pro-rata principle could be re-instated in terms of how the entitlement to holiday and holiday pay under the WTR is interpreted. It may be some time before this is determined and in the meantime the Court of Appeal decision is binding.

5 Steps Employers Should Take

• Assess which members of staff are potentially caught by this decision.

• Update contractual documents that there may be future developments.
  
  
• Consider whether contractual arrangements could be changed for any new (and potentially existing staff) if appropriate (ie through the use of self-employed or fixed term temporary contracts).

• Consider changing the way in which holiday entitlement has been calculated for all affected staff. They will need to have 5.6 weeks leave rather than pro-rating it and where staff work irregular hours it is likely to involve paying holiday based on the preceding 12 weeks' average pay rather than at a flat rate of 12.07%.

• Quantify the risk of arrears claims and determine a strategy in relation to these. Any such claims will be brought as unlawful deduction from wages claims and need to be brought within three months of the last deduction. Therefore, changing pay arrangements in line with the Court of Appeal decision will crystallise the time frame for bringing claims.
  
  In accordance with current UK legislation any claims brought after 8 July 2015 will be limited to two years' arrears for each member of staff from the date of claim (although this backstop may in itself be challenged as unlawful).

To discuss the steps you should take within your organisation, please contact Alice Reeve in our Employment Law team on 0117 314 5383 or complete the below form.