Holiday Pay - Win for Atypical Workers

While many across the UK will be enjoying time off over the summer period, the UK Supreme Court has been grappling with its own holiday-related concerns, issuing judgment in the long-running dispute as to the calculation of annual leave and holiday pay entitlements for atypical workers (in Harpur Trust v Brazel).

Unanimously dismissing Harpur Trust's appeal, the Supreme Court has ruled that workers engaged to work varying hours (who work only certain weeks of the year but have a contract throughout that year) are entitled to the same holiday pay as colleagues working all year.

• Background: The case concerns a music teacher, Ms Brazel, engaged on a zero-hours contract who only works during term time. Ms Brazel is a 'worker' within the meaning of the Working Time Regulations 1998, which entitles her to 5.6 weeks of paid annual leave (which she takes during the school holidays). 
• Calendar Week Method: Before 2011, Ms Brazel's holiday pay was calculated by reference to her 'average week's pay' (in accordance with the Employment Rights Act) and multiplying that by 5.6. 'Average week's pay' for these purposes means the amount of a worker's average weekly pay in the period of 12 weeks ending with the start of their leave period, ignoring any weeks in which they did not receive any pay.
• Percentage Method: From 2011 onwards, the Harpur Trust calculated the number of hours Ms Brazel worked at the end of each term, took 12.07% of that figure and then paid Ms Brazel her hourly rate for that number of hours as holiday pay. 12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year of 46.4 weeks. The effect of this change was that Ms Brazel received less holiday pay than she did in 2011 and she brought claims for unlawful deductions from her wages by underpayment of holiday pay.
• Decision: Rejecting Harpur Trust's appeal, the Supreme Court confirmed that the Calendar Week Method is permissible for workers like Ms Brazel. It dismissed arguments that the Calendar Week Method could lead to an absurd result whereby atypical workers could receive holiday pay representing a higher proportion of their annual pay than full time or part time workers working regular hours.

What does the judgment mean for employers?

• Many employers engaging zero hours workers will have been nervously awaiting this decision for the potentially significant financial burden this could impose (particularly in the education sector where a number of employers will engage individuals on part-year contracts). Employers that have been pro-rating holiday pay under the Percentage Method (in line with previous Acas guidance, that has since been removed and re-written) will need to revise their practices to ensure they comply with this judgment. 
• To the extent an employer has used the Percentage Method for its part-year workers, it would be prudent to assess whether this has resulted in historic liability and decide whether it needs to make back payments to correct underpaid holiday entitlements.
• Given the impacts of this judgment employers may also wish to reconsider the circumstances in which they make use of permanent contracts for certain types of workers who will not be working for a significant period of the year.

Authors: Ruth Buchanan, Partner; Crowley Woodford, Partner