In a landmark case, music schoolteacher Leslie Brazel, made waves within the industry by claiming that her holiday pay calculations were not in line with the Working Time Regulations (WTR).
Mrs Brazel was employed on a zero-hour permanent contract by Harpur Trust from September 2002, and throughout this time, worked irregular hours dependant on the demand for lessons from students. Brazel worked for around 32 hours per week and was paid solely for the work that she had carried out.
Initially, Harpur Trust calculated Brazel’s holiday pay based on her earnings at the end of the three-school year terms; using her average weekly pay from the previous 12-week period. However, following new ACAS guidance released in 2011, the Trust changed its way of calculating holiday pay and began to calculate Brazel’s pay according to 12.07% of her earnings from the previous term.
Whilst the school believed that this change was in line with guidance from ACAS; Mrs Brazel argued that this process did not comply with the provisions of the WTR, and in 2015, filed a holiday pay claim.
History of the case
In 2017, Brazel’s complaint was immediately dismissed by the Employment Tribunal, who ruled that the Trust had calculated her holiday pay correctly, using the pro rating principle outlined in ACAS guidance. However, Brazel appealed this decision to The Employment Appeal Tribunal (EAT) who later ruled in her favour. The EAT found that section 224 of the Employment Rights Act 1996 provided a simple method of calculating pay for irregular workers and that her holiday pay had in fact, been miscalculated by Harpur Trust.
Consequently, the Trust appealed to the Court of Appeal (COA), arguing that it was necessary to reduce the claimant’s holiday entitlement to avoid unjust results. Nonetheless, the COA dismissed this appeal as they identified Brazel to be a ‘part-year worker’. In 2019, the Trust were then granted leave to appeal to the Supreme Court (SC), where the final judgement would be made.
In a major development of the case, a recent SC ruling has upheld the judgment of the COA and rejected the methods proposed by the Trust. They concluded that using a “percentage method” to calculate an individual’s holiday pay was not in line with parliamentary policy. This was based on the absence in the WTR of a method to calculate pro-rata leave for those still employed but not required to work every week of the year (Croner).
The Working Time Regulations 1998
In the United Kingdom, the WTR outline the amount of hours that workers are allowed to work each week. The regulations state that workers are legally entitled to 5.6 weeks’ paid holiday per year, however, the amount of pay received by a worker depends on the number of hours worked and the rate at which they are paid for those hours.
Individuals working on a full-time basis on fixed hours and pay are able to take holiday and still receive the same pay at the end of the month as they normally would.
On the other hand, for workers operating on an irregular basis; calculating holiday pay entitlement can become a rather complex matter. If a worker receives a different amount of pay each week, month or any other pay period, it is advisable that an employer looks back at the workers previous 52 paid weeks (known as the holiday pay reference period) to calculate how much holiday pay they should receive.
The holiday pay reference period should start from the last complete working week that was worked ending on or before the first day of leave.
Employment Rights Act 1996
Section 224 of the Employment Rights Act (ERA) 1996 outlines that a week’s pay should be calculated using the average of a workers weekly pay over the previous 12 weeks, ignoring any weeks in which a worker has not received any pay. Under the ERA 1996, a week’s pay refers to any work which starts on a Sunday and ends on a Saturday, whilst the holiday pay reference period starts from the last whole week ending on or before the first day of period leave.
Section 224 applies in any circumstances regarding employment with no normal working hours unless they fall under S227 and 228 which are subject to S224.
Section 227 refers to the maximum amount of a week’s pay. Within this, it explains that for the purpose of calculating an award of compensation, award of compensation for unfair dismissal or a redundancy payment, the amount of a shall not exceed a week’s pay.
Section 228 considers any case in which an employee has not been employed for a sufficient period for a calculation to be made under the proceeding provisions of S224 ERA 1996. In simple terms, this legislation refers to new employment and other special cases where fewer than 12 weeks have been worked.
In relation to the two calculations outlined in the WTR and ERA 1996, the main difference between the two is the fact that Section 224 states that a week’s pay should be averaged over 12 weeks whereas, the WTR suggests the calculation is based on an average of over 52 weeks.
Implications for businesses
The Harpur V Brazel ruling certainly presents wide-reaching impacts for those businesses engaging workers on irregular hours and is in contrast to previous ACAS guidance on calculating holiday pay.
Businesses should be conscious of the fact that many irregular hour workers could argue that they are owed backdated holiday pay if they believe that their holiday pay calculations have been incorrect.
To safeguard your business from this financial and legal risk, you must review your holiday entitlement calculations for irregular hour workers who both have gaps between assignments and are currently paid using 12.07% average of their earnings. By carrying out an audit on your holiday pay processes, you can identify any shortfalls in holiday pay and can focus on rectifying discrepancies between employees to avoid any unlawful deductions from wages claims.
It's important to note that any unauthorised deduction from wages claims, must be brought within 3 months of the last underpayment of holiday (subject to extension in time limits for ACAS early conciliation). Liability for underpayments can go back 2 years from the date any claim is issued (Capital Law).
As an employer, it’s also important to consider the position of previous employees who may argue that their accrued but unused holiday pay entitlement on termination of employment may be incorrect after acknowledging the Harper Trust V Brazel case. This is not limited to 2 years but from the start of employment or their statutory entitlement to 5.6 weeks, whichever is later. (Capital Law). You must therefore have compliant holiday pay processes that fall in line with the WTR to limit any further liability for underpayment of holiday pay.
The ruling also removes the idea that a worker ‘accrues’ holiday pay and instead suggests that all employees have the right to 5.6 weeks holiday per year,
irrespective of the amount of work completed within the defined period, so long as they are continuously employed.
It’s therefore important that on every occasion an employee takes annual leave, an employer calculates their average weekly earnings using the previous 52-week calendar. Weeks not worked are disregarded for the purposes of this calculation, and therefore employers must ensure that they are obtaining accurate records of weeks, hours and pay worked.
For businesses using overarching arrangements it is worth noting that a contractor will continue to be entitled to holiday pay even when not on assignment. This means that the 12.07% calculation cannot be used exclusively, however it can be the basis for holiday pay providing further measures such as strengthening termination processes and monitoring holiday acrrual are taken. In most cases of workers, 12.07% is generally more than the statutory minimum and, providing the statutory minimum has been met, there is no further obligation.
Ultimately, the ruling will see major changes in the way that holiday pay is calculated going forward and presents challenges to those employers who have calculated holiday pay for workers using the 12.07% percentage method in previous years.
In the future, irregular hour workers may be entitled to the same leave and corresponding pay as those on full-time contracts however, for now they will be permitted to a full 5.6 weeks’ pay.
Although the ERA is up to date, changes may be brought into force at a future date.