194: Court of Appeal rules that holiday pay for term-time or part-year workers should not be subject to pro-rata reduction

In Harpur Trust v Brazel, the Court of Appeal considered how to calculate holiday pay for ­permanent staff who only work for part of a year. This is an important decision with implications for many employers, particularly schools.

Under the Working Time Regulations 1998 (WTR), all workers are entitled to 5.6 weeks’ paid leave per year. Applying this to workers with no normal working hours can be difficult. A common approach, also recommended in Acas guidance, was to say that the worker accrues holiday entitlement at the rate of 12.07% of hours worked. This is because 5.6 weeks is 12.07% of the standard working year of 46.4 weeks (ie 52 weeks less the 5.6 weeks’ leave). The WTR require a week’s pay to be identified in accordance with sections 221-224 of the Employment Rights Act 1996 (ERA) which has prescribed methods depending on whether a worker has set or irregular hours. That figure must then be multiplied by 5.6. However, there is no provision in the WTR for pro-rating.

Mrs Brazel was employed as a visiting music teacher during term time only. Her hours of work and pay were dictated by pupil demand. Her holiday pay was paid in three instalments at the end of each term, calculated as one third of 12.07% of her earnings for each term. Mrs Brazel brought a claim for unlawful deduction of wages in the Employment Tribunal, arguing that her holiday entitlement should be paid according to section 224 of the ERA, that is at the level of her average earnings over the 12 week period immediately before her holiday was taken, rather than using the 12.07% multiplier. As a term time only worker, this approach would result in her receiving a higher percentage of her earnings as holiday pay (for example, if she worked 32 weeks of the year, this would be 17.5% of her annual earnings).

The Employment Tribunal dismissed Mrs Brazel’s claims, ruling that a principle of pro-rating should apply and that payment for part-time workers working fewer than 46.4 weeks per year should be capped at 12.07% of annualised hours. The Tribunal held that words could be read into the WTR to that effect. On appeal, however, the EAT held that there was no requirement in the WTR to pro-rate holiday pay for part-year employees to ensure that full-time employees were not treated less favourably. The Tribunal had overlooked the principle that part-time workers must not be treated less favourably than full-time workers but that there is no principle to the opposite effect.

The Court of Appeal has now also confirmed that Mrs Brazel’s method of calculation is technically correct. This means that a permanent part-year employee should receive the same holiday entitlement as an employee who works all year round, which will also result in them receiving a proportionately higher rate of pay for their holiday than full year workers.

This case may be successfully appealed to the Supreme Court. However, in the meantime, as well as quantifying the risk of arrears claims, affected employers should consider whether holiday pay calculations in contracts of employment need to be amended to reflect this decision, and whether they wish to change holiday policies or contractual arrangements.