Holiday pay for term-time workers should not be pro-rated says the Court of Appeal

Update July 2022: the Supreme Court has handed down judgment in the case of Harpur Trust v Brazel and upheld the decision of the Court of Appeal, confirming that paid holiday for part-year workers cannot be pro-rated (for more information on the Supreme Court decision see our blog here).

The Court of Appeal has confirmed the earlier Employment Appeal Tribunal’s (EAT) decision in Brazel v Harpur Trust. At its heart, this case addresses the issue of whether workers who are engaged throughout the year but do not work for the entirety of that period should receive pro-rated holiday entitlement.

The Court of Appeal made it clear that term-time only workers’ holiday entitlement is 5.6 weeks, and that their holiday pay should be calculated by taking their average pay over the 12-week period immediately before the first day of their paid leave (as set out in sections 221-224 of the Employment Rights Act 1996 (ERA 1996)). If there are any weeks during that 12-week period when the worker did not work or earn any money, those weeks are discounted and the pay earned in earlier weeks is included to bring the number of weeks up to 12.This 12-week reference period will increase to 52 weeks with effect from 6 April 2020, under the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018.

The Court of Appeal’s decision to uphold the EAT’s judgment confirms that employers cannot calculate term-time only workers’ annual leave entitlement and pay at 12.07 per cent of their annualised hours (a model which, until the EAT’s decision, had been widely accepted and adopted in the education sector and referenced in ACAS guidance).

The Court of Appeal’s decision is wide reaching, not only impacting schools, but also affecting all businesses who engage workers on permanent contracts but who do not work the entirety of the year. In Underhill LJ’s words this judgment will affect “other areas of the economy where work is periodic” such as workers on an oil rig.

Background

By way of reminder, Mrs Brazel worked as a visiting music teacher for The Harpur Trust. She was employed under a permanent contract of employment but only worked during term time.

For her entitlement to paid annual leave, the Trust paid Mrs Brazel a percentage (12.07 per cent) of her accrued hours at the end of each term in three equal instalments. This approach was based on the pro rata principle, namely the concept that individuals should receive an amount of holiday proportionate to the percentage of the year they have worked if they do not work a full year. The 12.07 per cent figure was reached by dividing the working year of 46.4 weeks (ie 52 weeks minus 5.6 weeks’ statutory holiday) by the 5.6 weeks of statutory holiday entitlement.

The Employment Tribunal (ET) found in favour of the Trust stating that pro-rating Mrs Brazel’s holiday entitlement avoided any potential unfairness of her otherwise receiving proportionately more holiday than a comparable full-time worker. Mrs Brazel appealed.

The EAT rejected the ET’s decision and found in favour of Mrs Brazel’s argument that she was entitled to the full 5.6 weeks’ holiday, and that her holiday pay should be based on her average weekly earnings prior to the leave being taken. The EAT stated that the ET’s decision did not comply with the methodology required by the Working Time Regulations 1998 (WTR).

Court of Appeal

As the appeal raised an issue of wide reaching important for a significant number of workers regarding the calculation of holiday pay, Unison was granted permission to intervene.

Handing down the decision, with Underhill LJ delivering the lead judgment, the Court agreed that “part-year workers”’ holiday pay should not be pro-rated. They coined the term part-year worker to describe individuals who are employed for the whole year but only work for part of it.

Underhill LJ made the following key points:

• Construction of the WTR 1998: The WTR 1998 make no provision for pro rating. Underhill LJ stated that attempting to build in such a pro rating requirement went far beyond an exercise in statutory construction and instead substituted an entirely different scheme to what parliament intended.
• It is not unprincipled or obviously unfair that part-year workers are entitled to a higher proportion of holiday pay than their actual earnings compared to full-year workers: These workers are employed by schools on permanent contracts which provides the schools with benefits in relation to DBS and safeguarding checks. As such schools should accept the associated cost of the increase in holiday pay and holiday entitlement. Underhill LJ placed importance on the workers in question being engaged on permanent contracts.

The Court did accept the fact that extreme examples of part-year workers may produce odd results, such as an exam invigilator who only works four weeks a year, but justified this on the basis that “general rules sometimes produce anomalies when applied in atypical cases” and that those workers are more likely to be freelance than employed all year round.

A link to the Court of Appeal judgment can be found here.

What should schools do now?

It is unclear at this stage whether the Trust has sought / will seek permission to appeal to the Supreme Court.

However, if your school adopts the practice of pro-rating holiday entitlement and pay of workers who do not have normal working hours eg because they do not work throughout the year, you should take steps to:

1. Identify which of your employees / workers are affected by this decision. Remember this change is in relation to those who only work part of the year, eg during term time only, but are employed on year-round contracts such as visiting music teachers.
2. Identify how those employees’ and workers’ holiday entitlement and corresponding pay is calculated. If it is pro-rated according to the number of hours they have worked, you should strongly consider revising this. You could also consider making changes to such employees’ and workers’ existing contractual terms and amending provisions of future employment contracts, with the benefit of advice on how to introduce those changes for current staff. However, we suggest that you hold off from making any contractual changes until the outcome of any application for permission to appeal to the Supreme Court is known.
3. Calculate the amount you have potentially underpaid staff as a result of pro-rating their holiday entitlement to assess any potential historic and future liabilities in relation to this. There are time limitations in respect to such claims, both in terms of how far back any potential underpayments can be claimed for and when such claims would need to be made (which depend on which court claims are lodged in and whether the claim relates to a statutory or contractual entitlement). In summary, any claim for backdated underpayments is currently limited to unlawful deductions made in the past two years (by virtue of the Deduction from Wages (Limitation) Regulations 2014).

If you require further information about anything covered in this briefing, please contact Alice Yandle, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, August 2019