On 20th July 2022, the Supreme Court delivered the anticipated judgment in Harpur Trust v Brazel. The case was heard in November 2021 after Harpur Trust appealed the earlier Court of Appeal’s decision.
Lady Rose and Lady Arden, with agreement from Lord Hodge, Lord Briggs and Lord Burrows, announced that Harpur Trust’s appeal was rejected, and that the Court of Appeal decision stands.
What are the facts of the case?
The Claimant, Leslie Brazel, was employed by the Respondent, Harpur Trust, as a visiting music teacher. She commenced her role in 2002 and worked according to a permanent contract of employment. As she taught during term-times only and her hours varied from week to week, her hours were classified as being irregular.
From 2002 to 2011, Harpur Trust agreed with Mrs Brazel that her annual leave would be taken at three intervals during the calendar year in between term times. The pay calculated for her leave was made with reference to the hours worked in the previous term. The Supreme Court called this method the ‘Calendar Week method’, as Harpur Trust calculated pay according to the weekly average pay spanning over the previous 12-week period. This approach was in accordance with section 224 of the Employment Rights Act 1996.
From 2011, Harpur Trust changed their approach to the calculation of Mrs Brazel’s holiday pay, and instead calculated holiday pay according to 12.07% of her usual pay. The Supreme Court refer to this as the “Percentage method”, and Harpur Trust claimed that they were following contemporary ACAS guidance at the time.
Which law is relevant to this case?
Article 7 of the European Working Time Directive 1993/104 provides workers with the right to 4 weeks of paid annual leave. The Working Time Regulations 1998 were ‘gold-plated’ following the introduction of the Directive to provide workers with an additional 1.6 weeks of paid leave each year. Therefore, the current position is that all workers in the UK are entitled to 5.6 weeks’ paid leave, or the appropriate pro-rated period for part-time workers.
Section 224 of the Employment Rights Act 1996 further lays out provisions for calculating ‘a week’s pay’ for workers with no normal working hours. The section states that a week’s pay is the average weekly remuneration from the previous 12-week period. As of 6th April 2020, the period relevant for calculating a week’s pay is 52 weeks (rather than 12).
What did the Supreme Court decide?
The Supreme Court acknowledged that the Calendar Week method may lead to permanent workers, working irregular hours, being paid proportionately more holiday pay than those who work full-time. Harpur Trust argued that Parliament could not have intended this to be the case.
The Judges found that the correct way to determine the matter was to look at the statutory provisions of the Working Time Directive and the Working Time Regulations as well as the Employment Rights Act. Therefore, section 224 of the Employment Rights Act which dictates the rules on holiday pay calculations for workers with irregular hours, must be followed. The Judgment emphasised that Harpur Trust’s suggested methods of calculations could not be regarded as lawful if they directly contravened what the legislative provisions outline.
Essentially, this means that the common practice of businesses using a 12.07% calculation for holiday pay (whether rolled-up or otherwise) for permanent workers is unlawful.
What are the implications of this Judgment for employers?
This decision is important for employers who engage irregular-hours workers on permanent contracts. It is relevant to employment businesses and umbrella companies who commonly use the 12.07% ‘rolled up’ method for the purposes of calculating their workers’ holiday pay. The Judgment may also apply to industries which employ workers year-round when they mainly or only offer seasonal work during busy periods such as Christmas or summer.
Employers who currently use the ‘percentage method’ may need to revise their approach for workers on permanent contracts, and instead use the approach endorsed by the Supreme Court in line with the statutory provisions. This means that each time leave is taken, employers will need to calculate ‘a week’s pay’ for workers and do this by looking at the previous 52 weeks and calculating their average pay, excluding any weeks in which work isn’t undertaken. Alternatively, employers may wish to revise their contract offerings with their workforce and seek to introduce short-term and temporary arrangements for those that do complete irregular work for fixed periods of time. This may simplify the position in respect of holiday pay calculations.
This Judgment may also encourage employers undertake audits to check whether their workers have been underpaid in previous years, as they risk receiving unlawful deductions from wages claims, to the extent that the Claimants are within the appropriate time limits. Workers could attempt to claim for two years of backdated holiday pay if they think this has been calculated incorrectly.
