In the light of a recent supreme court case, Nikita Passi, Solicitor at Napthens suggests providers review how they calculate holiday pay for staff who may be affected by the decision.
The Supreme Court has now handed down its judgement on the case of Harpur Trust v Brazel, which sets out the position on how to calculate holiday pay for workers on permanent contracts but who do not work the entirety of the year. So, for example, those engaged on term time only or part year worker contracts. From the decision, this appears to be anyone who is on a permanent contract of employment but who does not work a full 52-weeks per year.
The Supreme Court’s decision has been a long-awaited judgement and is likely to have a long-standing impact for many organisations.
The case
Ms Brazel was employed by Harpur Trust as a music teacher and was employed on a term time permanent contract. Ms Brazel was paid an hourly rate and was only paid for the hours which she taught, which varied on a weekly basis.
Ms Brazel’s contract confirmed that she was entitled to 5.6 weeks holiday entitlement per year. In 2011, Harpur Trust changed the way in which it calculated Ms Brazel’s holiday pay, by multiplying the hours she worked by 12.07% and then multiplying that figure by her hourly rate of pay.
Ms Brazel brought a claim for unlawful deductions of wages arguing that she had been underpaid holiday pay, arguing that the method used to calculate holiday pay by Harpur Trust was not set out in the Working Time Regulations 1998 (WTR). The WTR states that a worker is entitled to 5.6 weeks holiday entitlement per year, paid at a week’s pay for each week of leave.
Ms Brazel claimed that Harpur Trust should have calculated her holiday pay by multiplying her average weeks pay by 5.6 which would produce her holiday pay entitlement for the year. Ms Brazel further claimed that by using the 12.07% method her holiday pay was less, as her holiday entitlement for the year was pro-rated by reference to her actual working time, whereas she was entitled to 5.6 weeks holiday.
Harpur Trust argued that Ms Brazel’s holiday entitlement should be pro-rated to reflect the actual hours worked otherwise she would be receiving an unfair advantage because she would have received the same 5.6 weeks’ holiday entitlement as someone who worked all year around.
The decision
The Employment Tribunal, agreed with Harpur Trust and dismissed Ms Brazel’s claim. On appeal, the Employment Appeals Tribunal overturned the Employment Tribunal’s decision, agreeing with Ms Brazel. On further appeal by Harpur Trust, the Supreme Court upheld the decision of the Court of Appeal, finding in favour of Ms Brazel.
The Supreme Court ruled that if WTR intended that the 5.6 weeks leave should be calculated on the basis of the amount of time worked, the WTR would have adopted a formula to achieve that result. Thereby, suggesting that the 5.6 weeks annual leave entitlement is fixed and universally applicable regardless of the amount of time actually worked.
The Supreme Court compared the fact that the WTR does expressly set out a method of calculation for those employees who are part-time, confirming that an employer is entitled to pro-rate their holiday entitlement to take account of this. There is no such express method for those who work part-yearly despite the fact that, at the time the WTR was being drafted and ever since, the vast majority of part-yearly employees work for the public sector. The Supreme Court therefore took the view that, had part-yearly employees been intended to have less than the minimum 5.6 weeks annual leave, the government at the time the WTR was being drafted would have set this out and the fact is that they didn’t.
As the Supreme Court is the highest Court in England and Wales, this decision is now final.
What does this mean for employers?
In light of the Supreme Court’s decision, it is strongly recommended that employers undertake an audit of their contracts and practices to identify how they calculate holiday pay for their workers engaged on permanent contracts but do not work for the full year and identify any potential liabilities.
In addition to this, employers will need to ensure that holiday entitlement for these individuals is 5.6 weeks in accordance with the WTR and if their workers are paid an hourly rate, they should ensure holiday pay is calculated by reference to their average earnings over a 52-week reference period, not by reference to the hours worked.
There may be workers who now consider that they have been underpaid holiday pay and therefore seek repayment from their employers. If an employer is challenged, the best approach in the first instance is for employers to take independent legal advice.
It is important to note, that should an individual bring an unlawful deductions claim, they only have three months from the date of the latest deduction to bring such a claim. Further, where there have been a series of deductions, for example regular underpayment of holiday pay, the Employment Tribunal will only look back two years from the date of the most recent deduction. It is also worth noting, that where there has been a gap of more than three months between deductions, the chain will be broken.
If you have any questions in relation to this article or any advice in relation to payment of holiday pay, feel free to submit a question in our Ask the Care Specialists page here: https://www.qcs.co.uk/ask-the-care-specialists/
