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  • Holiday Pay: How the Supreme Court’s recent verdict made monumental changes

    By Sarah Bunker, Senior Solicitor at esphr

    The Supreme Court’s long-awaited ruling in the Harpur Trust v Brazel case involving holiday pay has recently been made public.

    Whilst the ruling is clear, the implications are not. There is no guidance from the courts on calculating holiday pay for permanent employees who only work part of the year. The frequently used percentage method has been ruled unlawful, meaning many HR professionals have been left mainly to their own devices.

    Overview of the case

    The facts are clear: Ms Brazel teaches music and is employed on a permanent zero-hours basis, so she is only obligated to work during specific times of the year. Her employer, Harpur Trust, used a percentage formula to determine her annual leave entitlement, essentially 12.07% of time worked.

    According to Ms Brazel, employing the percentage technique resulted in her receiving less leave than required under the Working Time Regulations (WTR), which specifies that all employees are entitled to a minimum of 5.6 weeks’ leave in a leave year.

    Since Ms Brazel only worked part of the year, the Employment Tribunal rejected her claims, ruling that the employer was entitled to pro-rated leave.

    Recognising that the WTR explicitly states that all employees are entitled to a minimum of 5.6 weeks’ leave in a leave year, the Employment Appeal Tribunal and Court of Appeal rejected that decision, holding that pay for that leave must be calculated per the Employment Rights Act 1996 provisions.

    Only the entitlement for the first and last years of employment could be pro-rated. This meant they would be treated better than full-time comparators, but there were no restrictions on this occurring.

    What did the Supreme Court rule?

    Harpur Trust’s appeal was considered by the Supreme Court in November 2021 and has now been unanimously rejected.

    According to Harpur Trust, the European Working Time Directive works on the basis that workers are entitled to time off reflective of the amount of work carried out. However, the Supreme Court acknowledged that such a principle applies to the Directive but is not applied within the domestic WTR provisions.

    Furthermore, Harpur Trust suggested two alternative ways to calculate entitlement for part-year workers with variable hours: the percentage method (e.g., 12.07%) and the worked year method. However, the Supreme Court ruled that both of these methods are considerably different from the provisions in the WTR mentioned above. They are also overly complex, requiring parties to maintain thorough records.

    Finally, there was no restriction on part-time workers being treated more favourably than full-time workers. The Supreme Court stated that “a slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme which the Harpur Trust’s alternative methods require.”

    As a result, the appeal was rejected.

    What does this mean for employers and HR professionals?

    In essence, the Supreme Court’s decision confirms that a permanent employee’s 5.6 weeks’ annual leave cannot be pro-rated on the basis they only work part of the year.

    For permanent employees who only work part of the year, the frequently used 12.07% method of calculating entitlement is unlawful and will lead to a shortfall in leave being taken.

    The critical question is, how do you calculate leave entitlement for such a worker?

    Unfortunately, there is no easy answer to this, nor any guidance from the Courts in this case. It will be relatively easy if workers take a holiday in week blocks – the challenge will likely be if they want to take odd days. Whatever method is used, it will be crucial to guarantee that employees receive at least 5.6 weeks’ paid leave in the year.

    It should also be noted that while the case involved someone who worked variable hours during working weeks and only part of the year, this is also highly likely to apply to permanent employees with fixed hours during working weeks but only part of the year.

    This verdict clarifies the position of many in the education sector, waiting to see if the Supreme Court overturned the ruling. Schools that haven’t already changed how they calculate holiday pay for term-time-only permanent staff should immediately ensure that all such staff are being paid at least 5.6 weeks’ holiday pay a year.

    Note that employers may still calculate any additional holiday entitlement for equivalent full-timers (i.e. holiday over and above 5.6 weeks) pro-rata for term-time-only staff.

    Additionally, schools should ensure that the terms and conditions or employment contracts for term-time-only staff explicitly outline how their holiday pay is calculated. For example, instead of FTE, they might alternatively state the actual pay rate for the role.

    The Supreme Court’s ruling will undoubtedly impact employers in other industries, not just education, including those that use permanent employees only part of the year, including retail and the hospitality industry.

    Solve your holiday pay challenges with esphr’s expert support

    Our employment law experts are here to help you navigate this uncertainty.

    • We can help you identify the best approach to calculating holiday pay for you and your employees.
    • We can develop/update any factsheets or template documents you and your team might need along the way.
    • Should the worst happen, we can support you through any grievances and make sure we minimise the risk of costly mistakes.

    Visit esphr’s website and contact us on 0333 006 2929 or email info@esphr.co.uk today to discover exactly how we can help you.

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