In Harpur Trust v Brazel, the Supreme Court (SC) upheld the previous decisions on the statutory holiday entitlement of a part-year worker who is employed (or ‘under contract’) during non-working periods and how much holiday pay they should receive.

Background

The claimant (B) is employed as a music teacher working at a school run by the Harpur Trust (H) on a permanent, year-round zero hours basis and is only paid for the work she carries out. Under the Working Time Regulations (WTR) and her contract, she is entitled to 5.6 weeks’ paid holiday that she is required to take during the school holidays. No time during the school holidays is designated as holiday. Instead, B receives a payment in respect of one third of her paid holiday entitlement for the year at the end of each term.

Originally, H calculated B’s holiday entitlement and pay using ‘the calendar method’. H accepted that B was entitled to 1.87 weeks (one-third of 5.6 weeks) holiday at the end of each term and H would then pay B 1.87 weeks of her average weekly pay from the reference period as holiday pay. 

In 2011, H changed the way it calculated B’s holiday entitlement and pay to follow ‘the percentage method’. The amount of holiday that B was entitled to was calculated by applying a rate of 12.07% to the hours B had actually worked (on the basis that 5.6 weeks equates to 12.07% of hours worked over a full year). This change resulted in a reduction of B’s subsequent holiday payments.

B submitted an unlawful deductions claim to the Employment Tribunal on the basis that the percentage method was not compliant with the WTR or the ‘week’s pay’ requirements of the Employment Rights Act 1996 (ERA).

The Employment Tribunal dismissed her claim. Both the Employment Appeal Tribunal and Court of Appeal found in B’s favour. H’s appeal to the Supreme Court (SC) was heard on 9 November 2021.

The Supreme Court’s decision

The SC dismissed H’s appeal, concluding that:

• “the Court of Appeal was correct to hold that the Calendar Week Method represents the correct implementation of the WTR and that this is fully compliant with EU law,” and,
• “the amount of leave to which a part-year worker under a permanent contract is entitled is not required by EU law to be, and under domestic law is not, prorated to that of a full-time worker.”

Key clarifications

The Harpur Trust decision is entirely consistent with the existing law. However, the Supreme Court has provided clarity on the following points:

1. Default position: all workers are entitled to the statutory minimum of 5.6 weeks paid holiday in each holiday year. Where the worker is to be employed (or ‘under contract’) for the duration of the leave year (i.e. on a permanent basis) the statutory minimum annual entitlement does not accrue and cannot be pro-rated. The rule is: if the contract exists, so does the full WTR holiday entitlement, regardless of the amount of work done.
2. Where the worker is to be employed (or ‘under contract’) for an entire leave year, their statutory minimum annual holiday entitlement does not ‘accrue’. The worker starts a new leave year with 5.6 weeks’ paid holiday which is just ‘there’ for them to take ‘as and when’. They do not start with a ‘zero balance’ and then accrue their holiday in increments during the leave year by reference to either the period of time that the worker is employed/under contract or the number of hours worked.
3. Holiday entitlement and holiday pay under the WTR must be calculated separately. It is all too easy to conflate the calculation of holiday entitlement and pay, but this will result in inaccuracies.

• Entitlement – The idea that holiday is a reward for work done and entitlement is earned by reference to hours worked (the percentage method) has been rejected by the SC and can no longer be relied on as accurate.
• Pay - Statutory holiday pay must be based on the worker’s actual weekly pay if they have regular hours or their average weekly pay in the pre-holiday period if they have irregular hours (calculated in accordance with the ‘calendar method’) and not paid as a percentage of hours worked. 

Practical implications and next steps

The Harpur Trust decision is not limited to those who work during term time only; it applies to all workers.

However, in practice, it will only impact upon those who work during part of the year and remain ‘under contract’ during periods of non-work (for example, because they may work only during term-time or who work infrequently / occasionally during the year). We therefore recommend that employers:

• Review the individual holiday entitlement of workers engaged under this type of arrangement to ensure that they receive no less than the statutory minimum of 5.6 weeks’ paid holiday each year. Any worker who receives less than this should have their holiday entitlement increased to the statutory minimum.
• Adopt the calendar method to calculate statutory holiday pay for such workers (as the percentage method has been rejected by the SC and is an unreliable method that will inevitably result in the under or over payment of holiday pay).

The most common application of the percentage method is the practice of paying bank workers an additional payment of 12.07% of hours worked in respect of or in lieu of their WTR holiday entitlement. However, it does not necessarily follow that the percentage method will result in an underpayment of holiday pay; for a variety of reasons, overpayments are just as likely. This is complex area and we recommend that employers review their current arrangements with the benefit of legal advice in order to decide the best way to approach the calculation of holiday pay entitlement and pay for bank workers going forward.

How Capsticks can help

The WTR is a complex piece of legislation that has been the subject of numerous disputes, legal challenges and appeal court decisions. Our employment team has significant experience of supporting employers on working time issues (by drafting policies, contracts and delivering training to employees at all levels) and also to deal with any complaints that may arise (by conducting investigations, supporting decision makers and HR, and defending any employment tribunal claims).

If you would like to access advice, training or further guidance on working time issues (either generally or in relation to a specific case), please contact Nicola Green, Chloe Edwards or Sean Hick.