Understanding holiday pay is essential for workers, especially for those on zero-hour/seasonal only contracts.

Oue employment lawyer, Sarah-Jane Butler looks at historic supreme court holiday ruling

The Supreme Court has finally delivered its judgement on Harper Trust v Brazel. The judgment will have far reaching consequences for anyone working as “part -year” employees, namely those in the educational sector or seasonal workers. It is particularly relevant to employers who commonly use the 12.07% ‘rolled up’ method for the purposes of calculating their workers’ holiday pay.

The Supreme Court has ruled that any holiday pay must be calculated in line with statutory provisions, such that each time leave is taken, employers will need to calculate ‘a week’s pay’ for workers and do this by looking at the previous 12 weeks and calculating their average pay, excluding any weeks in which work isn’t undertaken. It is no longer possible to use 12.07% as a way of calculating holiday pay for those with varied, inconsistent hours.

Facts of the Case

For those of you not in the know, the facts of this particular case are as follows: Mrs Brazel was a visiting music teacher employed by Harpur Trust. She started working in 2002 on a permanent contract basis but working term time only, and her working hours varied each week depending on when her pupils had lessons. So, her hours were irregular, and she only worked part of the year. Like most teachers, Mrs Brazel was required to take her annual leave during the school holidays. Her holiday pay during such periods was calculated on the basis of the hours worked in the previous term.

The Supreme Court called this method the ‘Calendar Week Method’, as Harpur Trust calculated pay according to the weekly average pay spanning over the previous 12-week period. This approach was in accordance with section 224 of the Employment Rights Act 1996.

In 2011, Harpur Trust reviewed the way they calculated Mrs Brazel’s holiday pay and as a result changed their approach to the guidance advocated by ACAS at the time, meaning she received 12.07% of her usual pay. The Supreme Court refer to this as the “Percentage Method”. Mrs Brazel challenged this change in approach and the case has gone all the way up to the Supreme Court, with the Supreme Court finally agreeing with the Court of Appeal.

What does this mean for employers?

The Supreme Court, having reviewed the legislative provisions set out in the Working Time Directive and the Working Time Regulations as well as the Employment Rights Act, have determined that section 224 of the Employment Rights Act which dictates the rules on holiday pay calculations for workers with irregular hours, must be followed. In other words, employers must use the Calendar Week Method and not the Percentage Method. The Supreme Court acknowledged that this may in fact give way to those on such contracts as Mrs Brazel being entitled to a proportionately higher amount of paid holiday than those working full-time or that may have been considered under the Working Time Directive, but given the way the law has been set in legislation, their decision is a correct interpretation of the Working Time Regulations.

Every worker is therefore entitled to the same, fixed entitlement to 5.6 weeks’ leave with the only adjustments required resulting from the complicated rules on what consists of a “week’s pay”.

In essence therefore the Percentage Method is unlawful for those who work varying hours during certain weeks of the year but continue to be employed throughout the relevant period. Please note the difference between those who work part time all year on set hours for whom calculating holiday pay will seem a breeze after this. It will also not affect those workers who are engaged on short-term contracts for the period of the assignment only.

As Michael Ford QC and Mathew Purchase QC, both barristers at Old Square Chambers (our recommended set of chambers) and both lead counsel for UNISON supporting Mrs Brazel in this case, have stated in their article “Full leave And Full Pay for Every Worker: Harpur Trust v Brazel”, this case may also finally put to rest the concept of “accruing holiday”. “The entitlement to leave is just there, to be taken by everyone, from day one of each leave year. And every worker, after Brazel, is entitled to 5.6 weeks’ leave each leave year.”

What should employers do?

Employers who engage seasonal or zero-hour workers will need to review their template contracts and holiday leave policies to ensure they are updated. Furthermore, they will need to prepare themselves and their wallets for workers who may choose to bring a claim for back-pay. There is a real risk that part year workers who have had their holiday calculated incorrectly could bring claims for unlawful deductions from wages for any difference in what they have been paid and what they should have received. The “good” news is that there is a two-year limit on such claims.

The Supreme Court’s decision will definitely have a far-reaching impact on many sectors of our economy. It’s time for employers to pull up their big boy pants and face this decision head on, making the necessary changes to reflect this whole new world of holiday pay.