Case law: Employer must pay higher holiday pay rate to permanent worker who only works part time, says Court of Appeal

Employers with permanent workers who work for part of the time should review how they calculate their paid holiday entitlement, to ensure the UK working time rules are properly applied, following an important ruling.

A visiting music teacher worked at a school on a permanent zero-hours contract. She was a full member of staff but only worked for part of the time – she usually only worked in term-time, and then irregularly, for 10 to 15 hours each week. The court estimated she worked between 32 to 35 weeks per year. She was paid monthly in arrears at an hourly rate, for the hours worked the previous month. The court coined a new term – ‘part-year worker’ – to describe her.

As a permanent member of staff, she was entitled to 5.6 weeks’ paid annual leave, under the UK working time rules. Like other members of staff, she had to take her leave during school holidays. She received her holiday pay in three payments each year (in April, August and December). This was calculated by reference to recommendations in the Acas guidance for casual workers, Holidays and Holiday Pay, which say:

What leave do casual workers get?

If a member of staff works on a casual basis or very irregular hours, it is often easiest to calculate holiday entitlement that accrues as hours are worked.

The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year.

The 12.07 per cent figure is 5.6 weeks’ holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks). The 5.6 weeks are excluded from the calculation as the worker would not be at work during those 5.6 weeks in order to accrue annual leave.”

Therefore, in each of the school holidays in April, August and December the teacher’s employer paid her 12.07 per cent of her earnings made in the previous term.

The recommendations are based on the fact that for a permanent worker on full hours, their holiday pay is effectively equal to 12.07 per cent of their earnings for the relevant year. The recommendation assumes that a permanent worker who is not on full hours should also receive 12.07 per cent of their earnings in the year.

The employer argued that this was right because there was a general ‘principle of pro-rating’ underlying the UK rules, to which it gave effect.

However, the employee claimed that her employer should simply follow the UK working time rules as they were written down. These required it to:

  • calculate her average weekly remuneration for the 12 weeks before the first day of each holiday period (excluding any weeks for which no remuneration was payable); and
  • multiply it by 5.6.

There was no underlying principle of pro-rating which should be incorporated into any interpretation of the UK rules.

This would give the teacher holiday pay of some 17.5 per cent of her earnings for the previous term, rather than 12.07 per cent. As the court put it, that meant “the holiday pay to which, on her case, she was entitled would be a much higher proportion of her actual earnings than if she worked full-time: on the basis of a 32-week year it would be 17.5%, while the holiday pay of a full-year worker is, as we have seen, only 12.07% of their earnings”.

She argued there was nothing in the relevant provisions requiring a different approach where the worker does not work a full year.

So, the essential point at issue between the parties was whether the calculation of her holiday entitlement or holiday pay should be pro-rated to that of a full-year worker to reflect the fact she did not work throughout the year.

The Court of Appeal ruled in the teacher’s favour. It said the EU law did not provide for holiday leave or pay to be reduced pro rata, and UK rules should not therefore be construed as if the holiday pay of part-time workers had to be pro-rated.

Rather, the rule was that her employer should identify her average week’s pay over the 12-week period before the first day of each leave period (excluding any weeks for which no remuneration was payable) and multiply it by 5.6.

The pay of a part-year worker should not therefore be capped at 12.07 per cent of their earnings in the relevant year. The court said if this sometimes produced the odd result that a part-year worker received proportionately more holiday pay than a full-time worker, that could not be helped.

It did point out that the effect of its judgment would be limited. Part-year workers (workers on permanent contracts who only work for part of the year) are unusual, as people who only work part of the year are more often taken on as freelancers, and this was still a choice the employer would have available if they were unhappy with its ruling. The court also said “it does not seem … particularly inequitable that employers who choose to retain on permanent contracts workers whom they could have engaged freelance, because

doing so has particular advantages, should have to accept the additional costs that come with that choice”.

However, there were hints in the court’s judgment that the employer’s reason for making the teacher permanent in this case was to avoid the need to carry out fresh disclosure and barring checks every time she was re-employed, which would have made employing her as a freelancer administratively inconvenient.

The types of workers who may be taken on as part-year workers can include seasonal or term-time workers in sectors such as education and leisure.

It looks as if Acas will need to update its recommendations.

Operative date

  • Now

Recommendation

  • Employers with permanent workers, but who only work for part of the time, should review how they calculate those workers’ paid holiday entitlement, to ensure the UK working time rules are being properly applied

Case ref: The Harpur Trust v Brazel [2019] EWCA Civ 1402

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