The Supreme Court has held in Harpur Trust v Brazel that, when calculating the amount of paid holiday leave to which a “part-year” worker on a permanent contract is entitled, employers should not pro-rate it to that of a full-time worker to take account of the weeks in which no work is done. Instead, they are entitled to the 5.6 weeks leave under the Working Time Regulations 1998 (WTR), calculated on the basis of their average earnings over a 52-week reference period.
Ms Brazel worked as a music teacher during term time under a permanent contract of employment, averaging between 32 and 35 weeks a year. She was paid at an hourly rate of pay for each hour she worked and did not work during the school holidays. Under her contract, she was entitled to 5.6 weeks’ holiday leave, the same as her statutory entitlement under the WTR.
In September 2011, the school changed the way it calculated her holiday pay. Instead of basing it on her average earnings over the 12-week period which applied prior to April 2020 just before she went on leave (in accordance with section 224 Employment Rights Act 1996), it calculated it on the hours she worked at the end of each term. It then took 12.07 per cent of that figure and paid her the hourly rate for that number of hours.
It used this percentage because it represented the proportion of statutory holidays an ordinary full-time worker receives over the working year. In other words, it was the total number of weeks in a year less than 5.6 weeks holiday, giving a total of 46.4 weeks; while 12.07 per cent was the proportion of holidays for the working year on a full time basis as a percentage (5.6 weeks divided by 46.4 weeks).
Ms Brazel claimed that she was being underpaid for her holidays as her paid holiday entitlement was calculated as a proportion (pro rata) of a full-time worker’s working week. She contended that she was entitled to 5.6 weeks holiday leave and that her holiday pay should be based on her average earnings, as opposed to 12.07 per cent of the hours she worked. She therefore brought a claim for unlawful deduction of wages.
Decisions of lower courts
The tribunal dismissed her claim, holding that her holiday pay needed to be pro-rated to reflect the fact that she only worked during the term time rather than the whole working year. The EAT (weekly LELR 568) overturned that decision, holding that the statutory regime under section 224 made clear she should be paid a week’s pay for each of the 5.6 weeks holiday leave she was entitled to, calculated as an average of the 12 weeks immediately preceding the leave. This enabled a week's pay to be computed in a simple and straightforward manner (known as the Calendar Week Method).
The Court of Appeal (weekly LELR 641) agreed with the EAT. In doing so, it recognised that this put Ms Brazel in a more favourable position than some full timers since the amount of pay she received for her holiday leave worked out as a higher percentage of the total pay she received over the year.
The trust appealed, arguing that a part-year worker’s leave must be pro-rated to account for weeks not worked. As the WTR were enacted at least partly to implement the EU Working Time Directive which still applied as “retained” EU law, it followed that they must adhere to the “conformity principle” arising from EU case law. In other words, the amount of annual leave (and therefore pay) should reflect the amount of work that Ms Brazel actually did. Although Ms Brazel was better off under the Calendar Week Method, the trust pointed out that other hypothetical workers on irregular hours would not be and it was, therefore, necessary to adopt alternative methods of calculation as opposed to section 224.
Decision of Supreme Court
Dismissing the appeal, the Supreme Court held that European law did not preclude a state from making a more generous provision than that produced under the “conformity principle”. The amount of leave to which a part-year worker under a permanent contract was entitled did not, therefore, have to be pro-rated to that of a full-time worker.
The court also identified multiple problems with the trust’s suggestion that there should be alternative methods of calculation. First, any alternatives would be contrary to the statutory methods set out in the WTR and which had been decided by parliament. Secondly, the specific alternatives set out by the trust necessitated complicated calculations requiring employers and workers to keep detailed records of every hour worked, even if they were not paid at an hourly rate.
Finally, the court rejected the trust’s contention that the Calendar Week Method would lead to the absurd result whereby a worker in Ms Brazel’s position would end up getting more holiday pay as a proportion of her annual pay than full or part-time workers doing regular hours. It pointed out that, just because some workers with an atypical work pattern would benefit slightly from the statutory method, it did not justify its wholesale revision.
The case is significant for part year workers - that is, workers who are employed for the whole year but who are contractually only required to work and be paid for certain weeks during the year. It makes clear that employers should not pro-rate paid holiday entitlement by adopting the 12.07 per cent method for calculating holiday pay for part-year workers whose hours and pay vary over the year. The judgment also has implications on how holiday pay is calculated for casual and zero hours workers. Employers should, therefore, now carry out a review of how holiday pay has been calculated for term time, casual and zero hours workers in negotiation with unions.