Government launches consultation following Supreme Court ruling that holiday pay for part-year and irregular-hour workers can no longer be pro rated
Government launches consultation to mitigate the impact of the Supreme Court ruling in Harpur Trust v Brazel that holiday pay for part-year and irregular-hour workers can no longer be pro rated
Following the Supreme Court handing down judgment in Harpur Trust v Brazel in July 2022, the Government has now launched a consultation, closing on 9 March 2023.
The issue to be decided in Harpur was one of statutory interpretation of the Working Time Regulations 1998 (WTR) on the calculation of holiday entitlement and pay for a part-year worker with variable hours on a permanent contract.
The Supreme Court, dismissing the appeal by the Trust, confirmed that part-year workers (those who work some weeks and not others but are employed throughout the year) are entitled to a minimum of 5.6 weeks of paid annual leave and it cannot be prorated. Pay is calculated using a reference period (currently 52 weeks) to determine their average weekly pay, ignoring any weeks in which they did not receive any remuneration, and not the 12.07% basis adopted by the Trust.
The ruling impacts not only part-year workers, but also certain other irregular-hour workers. It has the effect that such workers may benefit from a proportionally higher holiday entitlement than a full-time worker and more than part-time workers with regular hours, even if they work the same total hours in the year. Workers who work only a few weeks in a year receive the largest increase in holiday disproportionate to the hours worked.
The Government proposes to address this disparity by replacing the 52-week reference period which ignores weeks in which no work is performed, with a fixed 52-week reference period which includes weeks in which no work is performed. This would ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working during the year. It is also looking to simplify the now-complex holiday pay and entitlement rules to make it easier for employers to understand and comply with the law.
Any affected party can take part in the consultation including, but not limited to, employees, employers, and unions as well as legal representatives. To respond to the consultation please click here.
Summary of Harpur Trust v Brazel
Mrs Brazel was a visiting music teacher paid on an hourly rate, who worked during term time only with varying hours but had a continuing contract throughout the year, even when she did not work i.e., during the school holidays. Therefore, she was a permanent part-year worker on a zero-hours contract.
Mrs Brazel brought a claim for unlawful deduction from wages arising from the calculation method applied by the Trust to calculate her holiday entitlement and pay.
The Trust contended that a part-year worker’s leave entitlement, in this case 5.6 weeks under her contract, must be prorated to take account of the weeks not worked. Accordingly, they had followed Acas guidance at the time and used the 12.07% method to calculate her entitlement and pay. This means they multiplied the hours she worked by 12.07% and then multiplied this number by her hourly rate. This approach resulted in a shortfall according to Mrs Brazel.
The Trust argued that this was fair as it was in proportion to the time Mrs Brazel worked in the year. Nevertheless, the Supreme Court confirmed there was no scope for this approach in the legislation. It held that the correct interpretation of the WTR is that leave for part-year workers is not prorated and the full entitlement should be calculated using the ‘Calendar Week Method,’ which uses a holiday entitlement reference period (now 52 weeks) to determine their average weekly pay, ignoring any weeks they did not work. It held that employers cannot calculate holiday entitlement using the 12.07% method or the other prorated methods advanced by the Trust in order to take account of periods when she did not work.
What does the Supreme Court’s judgment mean?
Employers must ensure that part-year workers and those on irregular hours receive a minimum of 5.6 weeks of paid annual leave and it cannot be prorated. Pay is calculated using a reference period (currently 52 weeks) to determine their average weekly pay, ignoring any weeks in which they did not receive any remuneration.
The judgment in Harpur highlights the difficulties surrounding the calculation of holiday entitlement and pay for certain non-traditional working patterns. The Supreme Court acknowledged that this ruling may result in part-year workers receiving holiday which represents a higher proportion of their annual pay than full time workers or part time workers who work regular hours. However, the WTR do not allow a mechanism to enable the employer to reduce the leave entitlement of part-year employees and workers to ensure that such workers receive an amount of leave which is proportional to that received by other workers. This was a policy choice made by Parliament and there is nothing in the statutory wording of the WTR that permits an alternative method of calculation. This means that any change to the method of calculation needs to come from Parliament.
Who does this impact?
Employees and workers on permanent contracts with irregular working hours such as part-year workers, casual workers, agency workers and others with irregular or unpredictable working patterns.
The Government’s consultation identifies that approximately 37% of these workers are in the education sector. However, this decision will impact any organisations that engage workers on permanent contracts with irregular hours as highlighted above.
This decision will not impact full-time workers, part-time workers with regular hours or any workers with fixed salaries.
Next steps
It is important to determine who may be impacted by this. A claim for unlawful deduction of wages can be brought for a maximum of two years’ worth of back pay as long as there is not a gap of three months or more between deductions. Claims need to be brought within three months of the last deduction.
Employers are advised to review their current contracts and holiday practices to they ensure they adopt the correct approach for calculating holiday entitlement and pay for these a-typical workers moving forward. Employers may also wish to conduct a review of the type of contracts they wish to offer and weigh up the pros and cons of each.
How we can help you
We understand that this may cause difficulties for many employers, resulting in a need to review existing contracts and practices. If you believe this may impact your organisation, or if you are an employee or worker and you believe that your employer has incorrectly calculated your holiday entitlement and pay, please do not hesitate to contact our Employment Team at Lennons Solicitors on 01494 773377 or email us at hello@lennonssolicitors.co.uk
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