How to calculate holiday pay for part-year workers: The Case of Harpur Trust (Appellant) v Brazel (Respondent) [2022] UKSC 21
Effect of case: Holiday pay for part-year workers on variable hours to be calculated by average pay of weeks worked (‘Calendar Week Method’) as per s224 Employment Rights Act 1996, rather than by proportion of actual pay over year (‘Percentage Method’).
Introduction
This recent Supreme Court case determined the issue of how holiday pay should be calculated for a worker who works variable hours for only part of the year, but whose contract covers them for the whole year. This type of contract is common in the education setting and for some seasonal workers.
Mrs Brazel (“B”), worked as a guest music teacher at a school run by the Harpur Trust (“H”). She was on a permanent contract and H accepted she had ‘worker status’. Essentially, B gave private music lessons to H’s students and would undertake such hours as were needed by the students on any given week, which varied. She was not offered work in school holidays. B was obliged to use her paid annual leave in the school holidays. She was allocated a third of her paid leave in the Easter, summer and Christmas holidays respectively. B disputed the way in which her holiday pay was calculated.
This article briefly covers the issue, the law, the arguments and the decision. It then looks at the implications for workers and employers contracting in similar circumstances.
The issue
Before 2011, H calculated B’s holiday pay by reference to the Employment Rights Act 1996 (“the ERA”). It worked out the average week’s pay and then multiplied it by 5.6 (weeks of holiday entitlement). The Supreme Court entitled this the ‘Calendar Week Method’. H changed its calculation in 2011. It did so on the basis of ACAS guidance, although ACAS has since changed its guidance. It calculated the number of hours B had worked in the previous term and multiplied it by 12.07. This is because 12.07% is the proportion of holiday full time workers get, 5.6 weeks being 12.07% of 46.4 weeks (the full year minus holiday).
This new calculation reduced the amount of holiday pay B received.
The relevant law/arguments in brief
The EU Council Directive 2003/88/EC the ‘Working Time Directive’ (‘WTD’) guarantees workers four weeks of paid annual leave. The UK implemented the Working Time Directive into UK law by the Working Time Regulations 1998 (‘WTR’). In 2007, it amended the regulations to guarantee an extra 1.6 weeks of leave. This was preserved when the UK left the EU. Therefore, UK workers are currently entitled by domestic legislation to 5.6 weeks of paid leave per year.
Where a worker does not work the same hours every week, the WTR suggests the definition of a week’s pay be that of s224 of the ERA, which essentially says that ‘a week’s pay’ should be the average of the previous twelve weeks of work. Weeks in which the worker did no work do not count. This was amended in April 2020 and now the average should be the previous 52 weeks of work.
B argued that H was not using the correct calculation as set out in the law, as above, and that the Calendar Week Method was correct.
H argued that the calculations should comply with the principle of the WTD, which is essentially that the amount of annual leave should be proportionate to the amount worked and pay should be pro-rated accordingly. Hence a full-time worker receives 5.6 weeks of paid holiday, which is 12.07% of their working weeks (46.4 weeks) and a part time worker on fixed hours who worked half of that would receive 2.8 weeks of paid holiday, which is still 12.07% of their working hours. H argued that the Calendar Week Method of calculation would give absurd results as essentially some variable hours workers would be benefiting from getting a higher proportion of paid holiday as compared to time spent working than fixed contract workers. For example, a worker who is only contracted to work 32 weeks per year would have a proportion 15.5% of paid holiday time to working time. In furtherance of its arguments, H provided alternative methods for calculating holiday pay, which it said better conformed to this principle.
The decision
Ultimately, the Supreme Court agreed with B. It held that the WTD did not prevent states from implementing more favourable holiday rights. For example, the UK, through its own regulations, guarantees more holiday than the minimum obliged by the WTD. It held that parliament had set the method of calculation for holiday pay for workers with variable hours as by average of weeks worked and excluding weeks not worked and that to implement one of the recommended alternative methods by H (or any alternative method) would be to create an entirely new scheme. Although it recognised that the practical effect of this is that some workers might get a different proportion of paid leave to work done, it held that “a slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme which the Harpur Trust’s alternative methods require” [72].
Implications for employers and workers
The education sector regularly uses part-year contracts. This would cover not just zero hours and peripatetic teachers but a host of other potential roles such as cleaners, lunch time supervisors and teaching assistants.
However, there are various other industries that use this type of contract. For example, where their premises are only open at certain times of the year, such as holiday attractions, or work that can only be conducted during certain seasons of the year. Given that the 12.07% method was the method at the time sanctioned by ACAS, it may be that many employers used this method for calculating holiday pay.
Workers will be able to bring retrospective claims against employers, as in the instant case. However, workers are usually subject to a three month time limit from the date of the last underpayment. It is likely, therefore, that workers who left employment more than three months before would struggle to bring a retrospective claim. There is also currently a two year limitation period on claims, although obiter comments in Smith v Pimlico Plumbers Ltd [2022] IRLR 347, CA have cast doubt on the reasoning behind that limitation period and it is therefore more open to challenge. It is recommended that any worker who is considering bringing a claim against a previous employer, or any employer who faces a claim brought by a previous worker seeks advice on time limits and how this may impact on prospects of success.
In terms of current workers, employers may wish to consider making a back payment, although given the rules on limitation and time limits, it may wish to get advice on how far back that back payment should extend.
Further, both workers and their employers should remember that the Weekly Calendar Method changed from a twelve week average to a 52 week average from April 2020. This may have the effect of lessening some of the proportional disparity.
Finally, if employers trial the Calendar Week Method and find it is producing entirely disproportionate results in its workforce, it may wish to consider introducing a different type of contract. For example, for someone who only works for a defined four weeks a year, it may be that they do not need to be on a permanent contract.
Isabel Baylis
9 St John Street Chambers
You can view Isabel's profile here.