The Supreme Court has ruled that the paid holiday entitlement of part-year workers should not be pro-rated for the weeks they do not usually work. It’s an important decision especially for people employed on a permanent contract for the whole year but who work for less than a full year, such as term-time-only staff in schools and universities. We’ll take a look at that.
The case concerned a music teacher Mrs Lesley Brazel on a zero-hour contract who worked roughly 35 weeks a year for the Harpur Trust. Her claim was for unlawful deduction of wages based on the argument that the Trust was not using the correct method of calculation when you take holidays into account. The court ruled that workers like her who are only employed during some weeks of the year, but who have a contract which lasts for the full year, are entitled to a full year’s statutory holiday entitlement, which is 5.6 weeks per annum. It dismissed the argument that employers should be able to reduce part-year workers’ holiday entitlement on a pro-rata basis to account for weeks they have not worked.
That approach is clearly biased in favour of part-time workers because it means they receive holiday pay representing a higher proportion of their annual pay than full-time or part-time workers who work regular hours. However, the court brushed that aside saying: ‘We do not regard any slight favouring of workers with a highly atypical work pattern as being so absurd as to justify the wholesale revision of the statutory scheme.’ So, it follows, all workers, regardless of their full-time or part-time status are entitled to 5.6 weeks annual leave.
So let’s get a reaction to this ruling. Emma Johnston joined me by phone from Edinburgh to discuss the case. I asked her what impact this case has had on her clients:
Emma Johnston: “Yes so there's quite a few impacts that we can see. Mainly, firstly, relating to higher costs for businesses in having to pay for the full annual holiday entitlement as opposed to a previous thought process where that could be pro-rated. There is also another issue which could arise which is that certain full-year workers feel aggrieved about the impact, i.e. that part-year workers are actually receiving a higher proportion of pay in terms of their holiday pay. So, for example, there are some workers who work, say, 30 weeks in the year who are likely to receive around 18% of their annual pay as opposed to about 12% for full-year workers, so there is quite a difference. The Supreme Court does actually mention in the judgment that this is a bit of an absurd outcome but states that actually that isn't a job for the court to rectify and that's something that parliament would have to look at via legislation if they wanted to change that.”
Joe Glavina: “As I understand it, Emma, there’s a risk of back-pay claims. What’s the risk here?” What’s
Emma Johnston: “There’s still a limit at the moment that these types of claims can only go back two years and a series of deductions is subject to that three month gap rule. That’s still in place at the moment and so that's something that that companies, I think, would have to just consider, that there is a slight risk of claims of that nature coming out. But I think the issue is that we are yet to understand the full reaction of this judgement from trade unions and parliament and so some companies may decide that the best thing to do is to sit tight at the moment and see how this unfolds and what happens next but, if that is the case, we are recommending to clients that they should undertake test calculations in accordance with support from the government guidance that's on the government website, and undertake those calculations just to try and understand what their exposure potentially could be, and determine that level of risk and, if at all possible, we would recommend that those investigations are taken under legal privilege.”
Joe Glavina: “So can this situation be avoided, Emma? So rather than having the full-year contracts in place for people who only work a proportion of the year, put them on short-term contracts.”
Emma Johnston: “Now, there are risks associated with ending contracts, and then starting them again, in terms of the continuity of employment, so that's something that companies should seek advice on to make sure that that is a genuine short-term contract, in which case, the 5.6 weeks holiday entitlement would not apply.”
Joe Glavina: “Can I just ask you about how this applies across different sectors?”
Emma Johnston: “Yes, so it is very sector and industry specific, I think. Some industries will not be able to see, okay, we're just going to start using short-term contracts going forward. So, for example, in the university sector, there needs to be a good understanding of what resourcing is available in the future academic year, for example. So it’s not as easy as saying, okay, just implement these short-term contracts because there is a risk in terms of continuity of employment that even if you terminate a contract, if there is always an intention to restart it at some future date in the short-term, then there is a risk that there is no genuine break in the employment relationship and so the risk will be higher for some industries compared to others and for some industries it will not be feasible to put those short- term contracts in place.”
Joe Glavina: “Finally, Emma, what if you’re not engaging the individual directly?”
Emma Johnston: “Even where a company is not engaging a worker or an employee directly there is still a risk that this decision increases costs further down the contractual chain - so for example, where you've got umbrella workers being supplied - and so in that case, end-user clients can anticipate an increased cost in having that flexible labour resource being supplied and the question then arises as to who's responsible for covering that additional cost and that's something that needs to be discussed with the parties in the chain.”
Emma and the team have put together an article which looks at all those points in some detail, including the calculation method that should now be used in these cases. That’s: ‘Part-year worker holiday pay ruling will raise costs for UK employers’ and it is available from the Out-Law website. We have put a link to in in the transcript of this programme.