Holiday Pay Decision: Implications for Employers

The Supreme Court has recently issued its long-awaited decision in the case of Harpur Trust v Brazel. This case deals with the important issue of calculating holiday pay for part-year workers who work for varying hours during only certain weeks of the year but have a continuing contract throughout that year. This arrangement is often found in educational settings with employees only actually working during term-time or seasonal workers. 

How the Case Unfolded

The Harpur Trust (“the Trust”) run Bedford Girls School. Mrs Brazel started working at the school in September 2002 as a visiting music instructor. During the school terms, Mrs Brazel worked different hours each week for which she was paid on an hourly basis (£29.50 per hour). During the school holidays she did not teach any lessons to the school pupils and was not required to work. 

Mrs Brazel was entitled to 5.6 weeks’ paid annual leave, which she was required to take during the normal school holidays and she was always treated as having taken her annual leave entitlement in three equal tranches in the winter, spring and summer school holidays. This meant that 1.87 weeks of each school holiday was treated as annual leave for which Mrs Brazel was entitled to be paid. 

From September 2011 the Trust changed the way Mrs Brazels’ holiday was calculated. It decided to calculate her holiday by taking 12.07% of the the total number of hours worked at the end of each term and paying her the hourly rate for that number of hours. This left Mrs Brazel significantly worse off than when compared to a previous method of taking the average pay for the 12 weeks preceding when she took the holiday (disregarding any weeks she did not work outside of term-time). 

Mrs Brazel made a claim for unlawful deduction from wages claim asserting that the Trust had not acted in accordance with the Working Time Regulations 1998 (“WTR”) by calculating her holiday pay in the way it had and she had therefore been underpaid. She asserted that the correct method that should have been used by the Trust was the averaging method taking her average weekly pay over the period of 12 weeks receding when the holiday was taken, ignoring any weeks that have not been worked. 

Mrs Brazel initially lost in the employment tribunal, but that was overturned on appeal by the Employment Appeal Tribunal (“EAT”) and the Court of Appeal also agreed with Mrs Brazel. The Trust was given leave to appeal to the Supreme Court. 

The Supreme Court dismissed the Trust’s appeal, holding that holiday pay for part-year workers should be calculated using the averaging method as asserted by Mrs Brazel which represented the correct implementation of the WTR and is fully compliant with EU law.  Although the averaging method will often result in workers with atypical working patterns receiving a higher proportion of their annual pay for leave than workers with normal working hours, the Supreme Court determined that the slight favouring of these type of workers is not sufficient to be incompatible with the EU Working Time Directive, which does not prevent the UK from making more generous provisions. 

Alternative methods of calculating annual leave, by pro rating the amount of leave in accordance with the number of hours or days worked, the “12.07% method”, or a more complex “worked year” method were rejected by the Supreme Court as incompatible with the WTR. 

What does this mean for employers?

This means that holiday pay for part year workers must meet at least the statutory minimum annual leave entitlement under the WTR of 5.6 weeks, even if they do not work all year round and calculating the rate of pay for that holiday should be done by looking at the average pay in the preceding 52 weeks (the reference period has increased from 12 weeks to 52 weeks under the WTR). 

Whilst this judgment is likely to affect a lot of employers in the education sector, employers in other industries such as those that employ seasonal workers, may find they are affected to. Those employers with part-year workers, term-time or seasonal workers who are not using the correct method of calculating holiday pay will need to make adjustments accordingly and consider how they may deal with potential claims from employees for backdated holiday pay.

Need advice? Get in touch with our employment lawyers

If you are an employer and require legal advice following the recent rulings on holiday pay for part-time workers, please get in touch with our employment law solicitors by completing the form below or giving us a call.