The Supreme Court has dismissed the appeal in the Harpur Trust v Brazel holiday pay case, upholding that term-time only workers should not have their holiday pay restricted to a 12.07% cap of their annualised hours.
Mrs Brazel is employed by Harpur Trust as a "visiting music teacher". She does not have a set number of hours and only works during term times. Her hours vary but are typically between 10 and 15 hours per week. Mrs Brazel is paid monthly based on an agreed hourly rate applied to the hours worked in the previous month.
Under her contract of employment, Mrs Brazel is entitled to 5.6 weeks' paid holiday each year and is required to take this leave during school holidays. Harpur Trust made three payments in respect of her holidays in April, August and December, calculated at 12.07% of her earnings for the previous term.
Mrs Brazel brought a claim for unlawful deductions from wages, arguing that her holiday pay should be calculated by reference to the average earnings over the preceding 12 weeks immediately prior to the end of the three terms (NB: the reference period changed from 12 to 52 weeks on 6 April 2020). This would have resulted in a much higher rate of holiday pay.
The employment tribunal at Bury St Edmunds dismissed her claims. She appealed the decision, which was upheld by the Employment Appeal Tribunal. The Harpur Trust appealed this decision at the Court of Appeal, arguing that a term-time worker's entitlement should be pro-rated to take into account that they did not work each week and to reflect the amount of work actually undertaken during the annual leave year. This appeal was dismissed.
The Supreme Court justices found that Harpur Trust’s method of pro-rating holiday pay to account for weeks not worked was unlawful.
In accordance with the Working Time Regulations 1998 workers are entitled to 5.6 working weeks paid annual leave and the Employment Rights Act 1996 sets out methods to calculate what a week's pay amounts to for the purpose of establishing the correct holiday pay.
For employees who have no normal working hours, it is necessary to calculate holiday pay based on their average weekly remuneration in the previous 52 weeks. Any weeks where no remuneration was payable are excluded and instead earlier weeks where remuneration was paid should be used.
This method of calculation can cause real complexities for workers who work irregular hours, and as a result many employers calculate holiday pay on the basis of 12.07% of pay for each hour worked. This is on the basis that the 5.6 weeks' leave entitlement under the Working Time Regulations amounts to 12.07% of a full-time person's working hours. However, whilst that may establish the amount of leave that a worker with no set working hours is entitled to, this case demonstrates the importance of distinguishing that from how the pay for that leave should be calculated; the same approach does not work for both.
The Supreme Court has held that holiday pay for term-time only workers should be calculated using the averaging method, ignoring any weeks that have not been worked. Even though this is likely to result in higher rates of holiday pay for atypical workers, the Supreme Court was satisfied that this is the correct method of calculation under the Working Time Regulations.
Many employers have used the 12.07% method to calculate holiday pay as a pragmatic option due to the complexities of looking at the pay received in previous weeks and discounting weeks where no pay was received. However, this case highlights that this is incorrect. The correct approach for term-time only workers and those with irregular working hours is to calculate the average pay received during the 52-week period prior to the employee taking annual leave. Of particular relevance for term-time only workers is that any weeks where no remuneration has been received must be ignored and an earlier week taken into consideration (up to a maximum of 104 weeks).
It should also be noted that while this case related to someone who worked variable hours during the week and only part of the year, this is also very likely to apply to permanent workers with fixed hours who work term-time only.
Employers with workers on permanent contracts who have no normal working hours and who do not work the full year (such as term-time only workers) should review their current contractual arrangements and assess their potential liability to back pay holiday pay, as well as amend their current methods of calculating holiday entitlement and pay in line with this ruling.
If you need any advice with regard to this decision and its impact on your business please contact Fiona Haworth on email@example.com
If you feel that you need guidance or advice on this matter, please call Practical HR on 01702 216573.