Tue 20 Aug 2019

Holidays for term time workers should not be subject to pro-rata reduction

The latest case on holiday pay will have implications for many employers in the education sector who are used to making a pro rata reduction to holiday entitlement for workers who work irregular hours.

The case of The Harpur Trust v Brazel is a stark reminder that a straightforward pro rata approach will not comply with the law where the worker concerned works irregular hours and only works for part of the year.

The case concerned a clarinet teacher whose hours varied each term according to the number of students she taught. She carried out no work for the Trust during the holidays although she was employed on a permanent contract.  She had a contractual right to 5.6 weeks' holiday in compliance with her statutory right and was required to take her annual leave during the school holidays. She was paid holiday pay three times a year and the Trust calculated her holiday pay as 12.07% of her earnings at the end of each term.  The 12.07% calculation derives from the fact that the standard working year is 46.4 weeks (52 weeks less the 5.6 week holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks. The Trust had applied this calculation, as do many employers, in accordance with ACAS guidance on statutory holiday entitlement.  This method of calculation meant that the amount of paid holiday received by the teacher was pro-rated compared to full time staff.

However, under regulation 16 of the Working Time Regulations holiday pay is calculated by identifying a week's pay and multiplying it by 5.6. Section 224 of the Employment Rights Act identifies a week's pay for a worker with irregular hours by averaging earnings over the 12 week period ending with the beginning of the leave.  Any weeks where no work is undertaken are ignored for the purposes of the calculation.  This method of calculating means that a worker who only works part of the year may receive a proportionately greater amount of paid holiday than their colleagues who work the full year.  The Incorporated Society of Musicians (ISM) challenged the basis of the calculation being used by the Trust because Ms Brazel received less, as a result of the application of the 12.07% multiplier, than she would have had the statutory basis for the calculation been used.

The claim was dismissed by the Employment Tribunal (ET) finding that it was correct that a worker who only works part of the year should have the 5.6 weeks' holiday entitlement pro-rated.  The application of the 12.07% multiplier by the Trust was acceptable.  Instead of applying the wording of regulation 16, the Tribunal inserted wording into regulation 16 to the effect that holiday pay should be capped at 12.07% of annualised hours for a worker who has no normal hours and works for less than 46.4 weeks per year.

However, Ms Brazel was successful on appeal to the EAT and the Court of Appeal has now upheld the EAT's judgment.  The Court of Appeal found that it was wrong for the ET to insert words into regulation 16 so that 'part year workers' had their holiday pay capped at 12.07% of their annualised hours. The Court made a distinction between part time workers who worked the full year and workers who worked irregular hours for part of the year ('part year workers').  Whilst pro-rating could be applied to part time workers who work a full year, for those with irregular hours the clear framework for calculation set out in regulation 16 should be applied. While undertaking the statutory calculation could result in a windfall for those who work fewer weeks during the year the Court did not accept that this was a reason to read down regulation 16.  The Court felt that it was not unreasonable to fix holiday entitlement at 5.6 weeks for those on permanent contracts regardless of the number of hours or weeks that they actually worked.  The actual days that they were relieved from work and the pay that they ultimately received for those weeks holiday would reflect the actual amount of work that they had done.

Employers should check that they are calculating holiday pay for workers with irregular hours on the basis of the statutory calculation.  While this may result in a windfall for some, application of the 12.07% multiplier - effectively capping the amount of holiday pay - runs the risk of unlawful deduction claims being made by term time workers.  The Court of Appeal was at pains to point out that their judgment applied only to those on permanent contracts but it is not difficult to see that their reasoning behind the application of regulation 16 could easily apply to those on casual contracts. As such, it is unlikely that this case will be the final word on the matter.

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