Out-Law News 4 min. read

Part-year worker holiday pay ruling will raise costs for UK employers

UK employers have been urged to review the way they calculate holiday pay for ‘part-year’ workers following a landmark ruling by the UK Supreme Court.

On Wednesday morning, the court ruled that workers 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 arguments 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. It also set out the correct method for calculating pay for these workers.

Employment law experts Helen Corden and Sue Gilchrist of Pinsent Masons said the judgment is particularly relevant to universities and other education providers who employ ‘term-time’ workers, as well as for employers of atypical workers such as those under umbrella contracts. It will also be relevant in sectors where workers are on permanent contracts but work irregularly for portions of the year such as in the oil and gas sector. They said it is likely to lead to “windfall” payments for some workers whose holiday entitlement and pay will now have to be calculated in accordance with the judgment and expects that it will spur the UK government to change legislation.

The Supreme Court’s ruling was issued in a case involving a dispute over holiday leave and pay entitlements between a school and Lesley Brazel, a visiting music teacher at the institution. The dispute revolved around the application of the UK’s Working Time Regulations – legislation that has its origins in EU law.

Under the Working Time Regulations, workers are entitled to 5.6 weeks of paid annual leave. However, in practice, Brazel has additional time off over the year due to her term-time only contract.

Prior to September 2011, the Harpur Trust, which operates the school Brazel works at, calculated Brazel’s holiday pay by multiplying her average week’s pay by 5.6. Brazel’s average week’s pay was determined by reference to section 224 of the Employment Rights Act 1996, which defines a “week’s pay” for workers of this type as the amount of a worker’s average weekly pay in the period of 12 weeks ending with the start of their leave period, ignoring any weeks in which they did not receive any pay.

However, in September 2011 the Trust changed the way it calculated Brazel’s holiday pay. The new calculation meant the Trust pro-rated holiday pay  to the number of hours worked. It then applied the “percentage method” to calculating her pay. This meant Brazel was paid 12.07% of her pay for hours worked each term, which resulted in her receiving less in holiday pay than under the previous calculation. The Trust arrived at the 12.07% figure by considering Brazel’s 5.6 weeks of annual leave entitlement in proportion to the total working year of 46.4 weeks.

The revised calculation method followed guidance Acas had in place at the time of change, but Brazel lodged a legal challenge against the Trust claiming unlawful deduction from wages. Acas has since changed its guidance.

An employment tribunal originally sided with the Trust, but its decision was overturned on appeal by the employment appeal tribunal (EAT). The EAT’s decision was subsequently upheld by the Court of Appeal in England and Wales. The Trust’s final appeal has now been dismissed by the Supreme Court.

In its ruling, the Supreme Court said that the Trust’s methods of calculation ran contrary to UK law, including calculation methods set out in the Employment Rights Act and incorporated into the Working Time Regulations. It also said the methods proposed by the Trust required complicated calculations, which meant every hour worked would have to be noted even if the worker was not paid by the hour.

The Supreme Court rejected the Trust’s claim that the calculation method favoured by the Court of Appeal leads to an “absurd result” because it would mean a worker in Brazel’s position would receive holiday pay representing a higher proportion of their annual pay than full-time or part-time workers who work regular hours.

The court said: “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.”

Helen Corden said: “This judgment confirms that all workers, regardless of their full-time, part-time or part-year status are entitled to 5.6 weeks annual leave. Full-time or part-time workers who work throughout the year may feel aggrieved by a perception that term-time workers are paid more for their time off than they are. However, this is a construct of the legislation. The only pro-rata adjustments for those working part-time or part-year or irregular hours are those which result from the calculation of a week’s pay for holiday pay purposes.”

“Employers who didn’t change their calculation methods for the 5.6 weeks of required statutory leave following the Court of Appeal’s decision should look at this now. It may be that a different way of getting work done would be preferable for employers in the education sector. However, that is something which would need to be carefully thought through and may simply not be feasible.”

Sue Gilchrist added: “The UK’s Working Time Regulations may go further than required by the European Working Time Directive, but that is not for the court to ‘fix’. It will be for the UK government to revise the regulations if it chooses. Working Time was always forecast to be one of the first employment law items on the list for post-Brexit amendments. This decision may well just speed the government more quickly towards that.”

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