KNOWLEDGE

Supreme Court judgment: employers cannot use 12.07% calculation for part year workers

Morton Fraser Partner Innes Clark
Author
Innes Clark
Partner
PUBLISHED:
21 July 2022
Audience:
Business
category:
Blog

Employers of part year workers should review their approach to holiday entitlement.

When the claimant in Harpur Trust v Brazel initially brought her claim before an employment tribunal she was unsuccessful.  She was a permanent employee (a music teacher) employed on a zero hours contract who worked term time only.  When calculating her holiday pay her employer took the view that her Working Time Regulations 1998 ("WTR") holiday entitlement should not be 5.6 weeks per year but should instead be reduced to reflect the number of weeks actually worked - effectively pro-rating the holiday entitlement when compared to a colleague who worked all year.  This meant her holiday pay was calculated as 12.07% of her earnings during the preceding term. 12.07% is based on the premise that the statutory annual holiday entitlement of 5.6 weeks represents 12.07% of a working year of 46.4 weeks (i.e. 52 weeks minus 5.6 weeks). This is a commonly used method of calculating holiday pay for workers in the same situation as the claimant which had previously been recommended in ACAS guidance. The employment tribunal found that the employer had correctly calculated the holiday pay.

However, under the Working Time Regulations 1998 a worker engaged under a permanent contract for a whole year has an entitlement to 5.6 weeks holiday.  If this calculation was applied to the claimant her holiday entitlement would reflect 17.5% of her earnings during the preceding term rather than the 12.07% her employer paid.  When the claimant appealed to the EAT her appeal was upheld.  The Court of Appeal agreed with the EAT, dismissing the appeal and finding for the claimant again.  The fact that this meant that the claimant had a windfall as compared to colleagues working the full year was, according to the court, the correct result of proper application of the legislative provisions.

The matter has now been considered by the Supreme Court who found in favour of the claimant.  Although it results in part year workers receiving disproportionately more paid leave than full year workers, the Court held that holiday pay for part year workers must not be pro-rated to reflect the number of weeks actually worked.  The respondent had put forward two alternative ways of calculating holiday pay for part year workers but these were rejected as contrary to the statutory calculation required under the WTR and too complicated, requiring employers and workers to keep detailed records of every hour worked.  The Court also rejected the argument that the calculation required under the WTR leads to a result so absurd as to justify a wholesale revision of the statutory scheme.

Employers with individuals engaged in this way may want to assess their liability for back pay and decide whether to make payment in respect of any holiday pay underpayments to date rather than to wait for claims to be raised.  They may also want to reconsider their use of permanent contracts in some cases.  Some employers will also have to deal with part time but full year workers who feel they are being treated inequitably compared to part year workers who work the same total number of hours but who, as a result of this judgment, will receive more paid holiday.

Disclaimer

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.