One of the most eagerly anticipated employment decisions of the year was handed down on 20 July. The case of Brazel v Harpur Trust concerned the application of the 12.07% calculation to statutory holiday pay.
This has been the percentage used for holiday pay calculation for many casual workers over a number of years and had even at one point been recommended by ACAS as the best method to adopt in order to ensure that the 28 days or 5.6 weeks statutory minimum entitlement was administered correctly. It worked mathematically on the basis that during the year there were 52 weeks in which work could be carried out; take from that the 5.6 weeks statutory holiday period would leave 46.4 weeks which divided into 5.6 gave the percentage of 12.07. If this was paid in addition to the amount earned, the employer’s liabilities in respect of the statutory holiday pay accrued were met.
The only problem with this logic was that the calculation did not easily fit where the employee only worked part of the year but was employed on a contract of employment that was continuous and lasted for the whole year. In these circumstances the individual worked less than the 46.4 weeks and the big question was how that impacted the 12.07 calculation?
Facts of the Brazel v Harpur Trust case
In this case Ms Brazel, a music teacher, worked only during school terms. She received no pay during school holidays when she did no teaching. She was paid a sum in lieu of her holiday entitlement using the 12.07% method on the amounts she had earned at the end of each term. She challenged this on the grounds that this did not fully compensate her for the 5.6 weeks annual holiday entitlement.
She argued that her holiday pay should have been calculated by reference to her average weekly earnings over the 12-week period immediately before her holiday was taken. She relied upon Regulation 16 of the Working Time Regulations 1998 (WTR) which states that Sections 221 to 224 of the Employment Rights Act 1996 (ERA) shall apply for the purpose of determining the amount of a week’s pay.
Sections 221 to 224 of the ERA provide for the calculation of a week’s pay in varying ways depending on whether the employee has normal working hours.
Section 224 was relevant for Ms Brazel in this case as her hours depended on the number of students who signed up for music. Section 224 provides where an employee has no normal working hours:
Applying that calculation – and taking the average weekly pay earned in the previous 12 weeks – the weekly pay for her 5.6 weeks holiday entitlement would be around 17.5% of her earnings rather than 12.07%. She brought claims for the difference in the 12.07% holiday pay received and that are due under a 12-week average calculation.
No pro rata for ‘part year’ work
The employer argued that the principle of pro rata should apply and that an employee who worked less than a full year should not be in a better position than an employee who worked the full year.
However, it was found that pro rata entitlement to holiday applied only to those working part time and that where a person worked part year there was no statutory provision that required the entitlement to be reduced on a pro rata basis.
It was acknowledged that interpreting the WTR in this manner was more generous than what was required under the EU Working Time Directive. It was highlighted though that whilst the WTR implemented the Directive, the European Court of Justice had on more than one occasion referred to the fact that national rules could be more favourable.
The arguments that pro rata principle should be applied on the basis that must have been intended were rejected. It was concluded it was not necessary to reduce the entitlement to make it pro rata.
Absurd results if no pro rata?
In the Brazel case the music teacher worked 32 weeks of the year. She had been paid 12.07% of her wages for accrued holiday. It was held that she had been due 17.5%. She had brought claims after each payment made i.e. the end of each term. As at the time of the original Employment Tribunal hearing the five claims she had submitted were joined and even then, the total monies involved were not substantial. The Employment Appeal Tribunal described the value as “small – something over £100 per annum”.
However, the value of the claim could increase substantially if the employee only carried out a short but well-paid assignment. In the course of the Court of Appeal proceedings the example was given of “a school cricket coach, who would only work for one term, or invigilators, who worked only during the exam season. In principle you could have a permanent employee who worked only one week of the year, for which he or she earned, say, £1,000, and who would then be entitled to 5.6 weeks (notional) annual leave, for which they would receive £5,600.”
However, the Supreme Court was not convinced that this was grounds for changing the legislation and agreed with the observations made in response that general rules sometimes provide anomalies when applied in untypical cases and it would be unusual for a worker whose services are only required for a few weeks a year to be engaged on a permanent contract unless there was some other good reason to do so.
The reference period
The Supreme Court decision refers to a 12-week reference period to ascertain the holiday pay.
The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 came into force on 6 April 2020 which was after the events leading to the claims being submitted. These Regulations provided that from 6 April 2020, the 12-week reference period was to be extended to 52 weeks (or the number of complete weeks for which the worker has been employed, if that period is less than 52 weeks).
The 52-week reference period applies to all calculations of statutory holiday pay under the WTR in which the 12-week reference period would otherwise have been used i.e. workers with no normal working hours, and workers with normal working hours whose pay varies with the amount of work done or with the times or days on which it is done.
If for any of the 52 weeks there were no wages earned an earlier week should be taken into account instead. If necessary, pay in the previous 104 weeks may be taken into account to get 52 weeks paid weeks.
Brazel v Harpur Trust – key points
The decision has highlighted a problem with the 12.07% method of calculating holiday pay that could lead to claims in respect of a shortfall of holiday pay.
In practice it means the 12.07% method may only safely be used where the employee is expected to carry out work over the full year.
The principle of applying a pro-rata reduction to the accrual of holiday entitlement will only apply in respect of the hours worked over a week not the weeks worked over a year. It will not matter if in some weeks there is little work as long as there is not an extended period where no work will be provided.
The practical impact will be felt most by those businesses that use zero hours workers on continuing contracts that involve work for certain limited periods during the year. The worker will have typically been paid an additional 12.07% on top of their wages due. That arrangement may not now reflect what the law requires as they will be able to claim 5.6 weeks holiday pay based on the average weeks’ pay over the course of the year no matter how few weeks they have actually worked.
However, it’s not necessarily all good news for workers either. Whilst the prospects of more pay for holidays may seem like a welcome windfall, it is also likely to mean that there will be fewer permanent contracts and that future engagements will be of limited duration. That will have a direct impact on an individual’s continuity of service which will be cut short to reflect the fact that they are not required to work over the whole of the year.