The recent Court of Appeal decision in Harpur Trust v Brazel has potentially opened a can of worms with regard to holiday pay for a very specific group of workers. The group in question are part-time workers on permanent contracts who do not work at all for large parts of the year.
This case relates to a music teacher who works mainly during school term-time. She is employed by the Trust under a permanent contract, on a zero hours basis and only gets paid for the work she does.
She is entitled to 5.6 weeks' paid holiday which she must take during school holidays. In working out her holiday pay the Trust calculated that 12.07% of Mrs Brazel's annual earnings would be paid to her in three instalments at the end of each term.
The 12.07% figure is worked out in a rather convoluted way by taking 5.6 weeks’ paid holiday from 52 weeks in a year, which leaves 46.4 and then divide 5.6 by 46.4. This pro-rata approach has been approved by ACAS and was also upheld by the Employment Tribunal in the first instance.
The Employment Appeal Tribunal's decision (upheld by Court of Appeal) was that this was incorrect. It was said that the Employment Tribunal had overlooked the underlying principal, being that part-time workers were not to be treated less favourably than full time workers and the appropriate legislation should be followed, which is quite clear on this matter.
The Working Time Regulations 1998 states that calculating a week’s wage for the purposes of holiday pay should be done in accordance with Employment Rights Act 1996 sections 221 – 224.
The Employment Rights Act states that a week’s pay is the average weekly remuneration over a twelve week period, disregarding any weeks in which no payment was due.
In a nutshell, this means that you work out the average week’s pay of the last twelve payable weeks and multiply it by 5.6.
The Trust argued that European Court of Justice has established the accrual approach, where employees obtain rights in accordance with the time they work. The Court of Appeal, however, drew a distinction between holiday entitlement and holiday pay and said that in any event, such an approach was not mandatory and that the appropriate European Law (Article 15 of the Working Time Directive) expressly provides that the domestic laws of member states can allow for more favourable arrangements for workers
In this matter it worked out that the holiday pay received should be 17.5% of Mrs Brazel’s annual earnings, but, the Trusts raised the issue that, in different circumstances, the result could be very disproportionate. If for example, a worker is on a permanent contract to work 1 week per year they would be entitled to 5.6 weeks holiday pay, which could mean that they were paid for 6.6 weeks per year, or to put it another way 6.6 years pay for one week’s work.
The court did not dispute the fact that this could lead to extreme cases. Lord Justice Underhill in upholding the Employment Appeal Tribunal’s decision, did not consider it unjust and suggested that retaining staff permanently brought advantages to the employer and that they should bear the financial burden that comes with doing so. He also made a the point that the pro-rata approach could lead to unfair outcomes for the worker.
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