As we start the summer holidays, the Supreme Court’s judgment on holiday pay is a timely reminder of the complexities of calculating holiday pay for certain workers.

Holiday pay has been a hot topic in UK employment law over recent years, with the latest Supreme Court decision in Harpur Trust v Brazel addressing the calculation of pay for workers who work irregular hours for part of the year on permanent contracts. Dismissing the appeal, the Supreme Court agreed with the earlier decisions that holiday pay should not be pro-rated, but instead calculated by looking at average earnings over the relevant reference period prior to leave being taken, even if it meant that the worker received proportionately more paid holiday than a full time worker.

Mrs Brazel is a music teacher who works for a school operated by the Trust on a permanent contract, working term time only. She has no normal hours of work during term time as the hours varied each week depending on demand for her saxophone or clarinet lessons. She has no minimum guaranteed hours, and is paid an hourly rate for any work carried out, which is paid to her monthly in arrears.   

As a ‘worker’, Mrs Brazel is entitled to 5.6 weeks of paid annual leave under the Working Time Regulations 1998 (WTR). All of her annual leave was taken during school holidays (or at another time convenient for the school) and was paid her holiday entitlement in three equal tranches (i.e. of 1.87 weeks) during the school’s spring, summer and winter holidays respectively.

The issue arises as to how to calculate what she is paid for each tranche of annual leave.

For the purposes of the WTR, a “week’s pay” is calculated by reference to average weekly pay in a reference period ending with the period at the start of the leave, ignoring any weeks where no work was carried out. For the time period relevant to this claim, the relevant reference period was 12 weeks (it subsequently increased to 52 weeks in April 2020). This is how Mrs Brazel’s holiday pay was calculated prior to September 2011, i.e. at the start of each school holiday the Trust would calculate what she had been paid in the 12 term time weeks prior to the start of the school holidays (ignoring half term and any other weeks where she did not hold lessons), divide that by 12 to get her average weekly pay, and multiply by 1.87.

However, from September 2011 the Trust changed how they calculated Mrs Brazel’s holiday pay, pro-rating it to take account that she worked part time. Using the approach recommended in Acas guidance at the time for casual workers, they took 12.07% of the hours she had worked in the preceding term (12.07 being the proportion of 5.6 weeks of annual leave vis-a-vis a total working year) and paid her hourly rate for those hours. Mrs Brazel was worse off under this method of calculation, and presented a claim.

Mrs Brazel lost her original claim, with the tribunal agreeing that a pro-rated approach was appropriate. However, the Employment Appeal Tribunal, Court of Appeal and now Supreme Court have all subsequently sided with her on the basis that the WTR are clear that she should be paid a week’s pay for each of the 5.6 weeks to which she was entitled, a week’s pay calculated using an average over the prescribed reference period. Although this put her in a more favourable position than full time colleagues, this was the correct interpretation of the legislation, and not inconsistent with the EU law from which the WTR are derived.

This decision does not affect using a pro-rated approach for part time workers with regular working hours, or casual workers who are working most weeks of the year, but will be a disappointing outcome for employers who engage workers who work irregular hours and only during certain times of the year, as it appears perceptually unfair that they be proportionately better off than someone working full time, or more regularly. Although of most significance in education settings, it may also apply to other organisations who engage casual workers on a term time only, seasonal or other periodic basis, but on a permanent contract. 

Employers who fall in this category should consider their potential liability for holiday pay if they have been using the pro-rata method of calculation. Although the Supreme Court decision has not changed the law in this area, there are no further avenues for appeal and some employers may have optimistically adopted a ‘wait and see’ approach before adjusting their methodology. 

Employers may also consider revisiting how they engage workers affected by this decision, looking to move away from permanent contracts, or to avoid worker status, in order to mitigate their holiday pay liabilities.

Finally, it is worth noting that there is subtle reference in the judgment to the adequacy of the WTR for the purposes of calculating holiday pay. With the UK no longer a member of the EU, it is often speculated that the WTR would be on the agenda for amendment if and when there is political appetite and time to deviate from EU derived laws. Watch this space – we suspect the holiday pay issues of recent years have not finished yet.