Calculating Holiday Entitlement for Term-Time Workers

In this Education Quarterly Law Update, Paul Upson considers a recent decision from the Court of Appeal in England and Wales which deals with holiday pay for term-time workers. Paul recently joined education law specialists, Napier Solicitors, as an Associate Director.

Many employers in the education sector employ staff on contracts where the individual is only required to work for part of a particular year, most notably term-time contracts. In Harpur Trust v Brazel, the Court of Appeal in England and Wales considered how much annual leave and holiday pay such ‘part-year’ workers should receive.

Background

Ms Brazel was a music teacher. She was employed under a permanent contract to work at a school run by the Harpur Trust. She did not have fixed working hours - the number of hours that she worked during each term depended on how many pupils required music tuition.

The length of an academic year at the school varied from between 32 and 35 weeks per year. Ms Brazel was employed all year round but did not provide music lessons during the school holidays and did not carry out any other duties during such periods. In that sense, she could be described as a ‘part-year’ or ‘term-time’ employee.

To calculate Ms Brazel’s holiday pay the employer used a method recommended by ACAS (in Northern Ireland the Labour Relations Agency carries out similar functions to ACAS). The relevant section of the ACAS guidance said:

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.

Each year Ms Brazel received three payments for annual leave at the end of April, August and December (those being the points when each school term finished). On each of the three pay dates the employer calculated her total earnings for the preceding school term; calculated 12.07% of that figure; and then paid her one-third of that sum.

Ms Brazel argued that the employer’s calculation was wrong and that, as she was employed all year round, she was entitled to 5.6 weeks of annual leave. The employer argued that, as she only worked between 32-35 weeks per year, it was unfair for her to receive annual leave on the same basis as if she worked a full year of 46.4 weeks (i.e. 52 weeks per year less 5.6 weeks of annual leave entitlement).

The employer argued that if Ms Brazel was entitled to 5.6 weeks of annual leave her holiday pay entitlement would be a much higher proportion of her actual earnings compared to someone who worked a full year. As set out by ACAS the relevant percentage for a full-year worker was 12.07%. Using one of Ms Brazel’s 32-week school years as an example, the relevant percentage for her would have amounted to 17.5% (i.e. 5.6 weeks annual leave divided by the 32 weeks she worked).

Legal position

The EU Working Time Directive required every Member State to ensure that a worker was entitled to paid annual leave of at least four weeks. In England and Wales, the right to paid annual leave under the Directive was implemented by way of the Working Time Regulations 1998. The equivalent legislation for Northern Ireland is the Working Time Regulations (Northern Ireland) 2016. The relevant sections of the legislation are as follows:

• Regulation 13 of the Working Time Regulations 1998 says that workers have a right to four weeks annual leave - in Northern Ireland see Regulation 15 of the Working Time Regulations (Northern Ireland) 2016.
• Regulation 13A of the Working Time Regulations 1998 says that workers have a right to an additional 1.6 weeks of annual leave - in Northern Ireland see Regulation 16 of the Working Time Regulations (Northern Ireland) 2016.
• Regulation 16 of the Working Time Regulations 1998 says that a worker is entitled to be paid for annual leave at the rate of a week’s pay in respect of each week of leave - in Northern Ireland see Regulation 16 of the Working Time Regulations (Northern Ireland) 2016.

In England and Wales, a week’s pay is determined by reference to sections 221-224 of the Employment Rights Act 1996. The equivalent provisions in Northern Ireland are articles 17-20 of the Employment Rights (Northern Ireland) Order 1996.  It was common ground in this case that Ms Brazel had no normal working hours.  For individuals in such circumstances, a week’s pay is taken to be the worker’s average weekly pay in the 12 weeks before the first day of the relevant period of leave (excluding any weeks in which no remuneration was payable). 

Decision

Ms Brazel lodged proceedings with the employment tribunal but her claim was unsuccessful. She then lodged an appeal to the Employment Appeal Tribunal and the initial tribunal decision was overturned. The employer appealed to the Court of Appeal. Lord Justice Underhill gave the Court’s judgment in favour of Ms Brazel.

Lord Justice Underhill decided that it was not a requirement of EU law that part-year workers should receive annual leave on a pro rata basis to that received by full-year workers.

He acknowledged that it might seem surprising that the holiday pay for part-year workers represented a higher proportion of their annual earnings than in the case of full-year workers but indicated that he was not persuaded that such an approach was unprincipled or obviously unfair.

Lord Justice Underhill said that it was important to appreciate that workers such as Ms Brazel were on permanent contracts. He took the view that it did not seem unreasonable to treat that as a sufficient basis for fixing the quantum of holiday entitlement, irrespective of the number of hours, days or weeks that the worker may in fact have to perform under the contract.

He went on to say that the Working Time Regulations 1998 make no provision for pro rata annual leave for part-year workers. They simply require the straightforward exercise of identifying a week’s pay in accordance with sections 221-224 of the Employment Rights Act 1996 and multiplying that figure by 5.6.

Conclusion

This important decision raises the prospect of further holiday pay claims being brought by other part-year workers. It means that employees in similar circumstances to Ms Brazel could be entitled to a higher level of holiday pay.

If they have not already done so, it would be sensible for employers in the education section who employ part-year workers to review how their part-year contracts operate; and how they calculate annual leave and holiday pay entitlement for such staff.

It is important to stress that this case involved a part-year worker on a permanent contract who was employed throughout the year. Schools may employ other individuals on short-term individual contracts. Such individuals would be entitled to accrue annual leave during periods when their short-term contract is in operation; and, at the point when their short-term contract comes to an end, they would be entitled to a payment in lieu for any outstanding accrued leave.  However, such workers would not be entitled to accrue annual leave during any periods when a short-term contract was not actually in place.

Finally, it is understood that the employer has sought permission to appeal the decision to the Supreme Court. If such an appeal went ahead, the Supreme Court could change the legal position summarised in this update and so it would definitely be worth keeping an eye on any future developments in this case.