UK Supreme Court Blog

EDITORS: Dan Tench, Emma Cross, Zainab Hodgson, Francesca Knight, James Warshaw and Natalie Haefner (CMS)
Hugh Tomlinson KC, Matthew Ryder KC, Nandini Bulchandani and Daniel Rudd (Matrix)

In this post, Hattie Ryland, an Associate at CMS, previews the decision awaited from the UK Supreme Court in the matter of Harpur Trust v Brazel. 

On 9 November 2021, the Supreme Court heard the appeal in Harpur Trust v Brazel. The forthcoming decision is expected to provide some much-needed clarity on how employers should approach calculating annual leave entitlement and pay for workers who work irregular hours, including those workers on zero hours contracts.

Factual background

The respondent, Ms Brazel, is a clarinet and saxophone teacher. She is employed by the appellant (the “Trust”), which runs Bedford Girls School, as a “visiting music teacher”. She is employed by the Trust on a zero-hours contract, meaning that she does not have a set number of working hours; the hours she works in a given school term depend on the number of pupils requiring tuition in her instruments. She is paid monthly on the basis of an agreed hourly rate applied to the hours worked in the previous month.

As a worker within the meaning of the Working Time Regulations 1998 (“WTR”), Ms Brazel is entitled to 5.6 weeks’ paid annual leave. Since the school holidays are longer than that, the Trust did not designate any particular parts of them as statutory leave. Instead, it made three payments in lieu of holiday in respect of each term, in December, April and August.

In 2011, the Trust altered the manner in which it calculated those holiday payments. It purported to follow a method recommended in then available ACAS and Government guidance for calculating the holiday entitlement of casual workers. The guidance suggested that for workers with casual or irregular hours, holiday entitlement could be calculated as 12.07% of hours worked. This was on the basis that 5.6 weeks is equivalent to 12.07% of hours worked over a year (5.6 weeks’ holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks) multiplied by 100 = 12.07%) (the “12.07% Method”). The employer will then pay the normal hourly rate for that holiday, as and when it is taken.

The Trust adopted the 12.07% Method, which had the effect of Ms Brazel receiving a smaller sum in respect of her holiday pay than she had previously been receiving from the Trust. She brought proceedings for unlawful deductions from her wages by underpayment of her entitlement to holiday pay.

The legal issue explained

The issue in this case before the Supreme Court is whether the 12.07% Method is compliant with the 5.6 weeks’ paid holiday entitlement under the WTR.

Under the WTR annual leave entitlement is based on a proportion of the number of weeks in the holiday year that the individual has been engaged under their contract. Where the worker has been engaged under a contract for the full 52 weeks, their entitlement will be to 5.6 weeks’ annual leave. This is the case regardless of how many (if any) hours are worked in a particular week; all that matters is that the contract between the employer and the worker remains in place. The worker is then entitled to their “normal pay” for that holiday. For workers with no fixed hours, this will be calculated on the basis of their average pay over the previous 52 paid weeks before the date they take their holiday (Employment Rights Act 1996, s 224) (“ERA”) (at the relevant time, the reference period was the previous 12 paid weeks). Weeks in which no remuneration is earned are ignored, and earlier weeks are brought into the calculation to make up the requisite 52 weeks, up to a maximum of 104 weeks before the calculation date.

The result is that the longer the period of the year that the worker is engaged but undertakes no work (and receives no pay), the bigger the disparity between the 12.07% Method and the approach under the WTR. As an extreme example (which was put forward by counsel for the Trust in the proceedings), the apparent result of the WTR is that a worker engaged on a permanent contract, but who works only one week of the year, for which they earned £1,000, would then be entitled to 5.6 weeks (notional) annual leave, for which they would receive £5,600. Under the 12.07% Method, they would receive £120.70.

Appellate history

Ms Brazel brought proceedings in 2015 before the Employment Tribunal for unlawful deductions from her wages by underpayment of her entitlement to holiday pay. The Employment Tribunal decided against her on this issue, holding that the application of the 12.07% Method to either the length of the holiday entitlement or to what it described as Ms Brazel’s: “average pay over the course of the working year of 46.6 weeks” would give her proportionately the same holiday entitlement as a full-year worker.

Ms Brazel then appealed to the Employment Appeal Tribunal (“EAT”), where she was successful. The EAT held that there was no reason to depart from the plain statutory language; the intention of the WTR is that all workers are entitled to 5.6 weeks’ paid holiday and there was no basis for pro-rating that entitlement (irrespective of whether or not this favoured part-year workers over full-time workers).

The Trust brought the issue before the Court of Appeal in 2019.

Key Court of Appeal submissions

The Trust’s fundamental submission was that pro-rating of Ms Brazel’s holiday / holiday pay entitlement to her salary, using the 12.07% Method, was necessary in order to avoid unjust results that cannot have been intended; 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 working year it would be 17.5%, while the holiday pay of a full-year worker would only be 12.07% of their earnings. Even greater anomalies would be apparent for employees on permanent contracts who worked for even smaller proportions of the year, as noted above. The WTR right to paid annual leave (or at least the right to four weeks’ paid leave) is derived from the European Working Time Directive (“WTD”). The Trust submitted that relevant Court of Justice for the European Union authorities, in particular Greenfield v The Care Bureau Ltd (C-219/14), established that, as a matter of EU law, entitlement to annual leave accrued in step with the relevant units of work, so that if an employee performed less than a full year’s work, they should get less than a full year’s holiday entitlement / pay.

Ms Brazel’s position was that the Trust’s method of calculating her holiday / holiday pay bore no relation to the calculation required by the WTR and produced a lower figure than that required by law under the WTR. It was common ground that she had no normal working hours within the meaning of the ERA, and, accordingly, section 224 applied in determining the amount of “a week’s pay”. She argued that, by virtue of regulation 16(1) WTR, which incorporated s 224 ERA, the correct approach was to calculate a week’s pay by taking her average weekly remuneration for the 12 weeks prior to the calculation date in which she received pay (the process laid out in s 224 ERA as it stood at that time), and then, by virtue of regulation 13 and regulation 13A WTR, to multiply it by 5.6.

Decision of the Court of Appeal

The Court of Appeal dismissed the appeal and held that, despite Ms Brazel not working the full year, she was still entitled to 5.6 weeks’ holiday and her holiday pay should not be limited to 12.07% of her salary.

The Court of Appeal noted that the WTD does not prescribe any particular mechanism for the assessment of holiday pay entitlement, and article 15 expressly provides that member states may accord workers entitlements which are more favourable than those required by the WTD itself. Therefore, even if the WTR provides for a different model for assessing entitlement to annual leave that results in favourable treatment of part-year workers, this is not in itself an issue, so long as it accords workers the minimum rights required by the WTD.

Addressing the potentially extreme results put forward by the Trust’s counsel, the Court of Appeal accepted these, but noted that general rules sometimes produce such anomalies when applied in untypical cases. It also noted that it would be unusual for a worker who worked so little proportion of the year to be on a permanent contract, as opposed to being engaged on a freelance basis. The Court of Appeal noted that, because Ms Brazel was engaged on a permanent contract, it did not seem unreasonable to treat that as a sufficient basis for fixing the quantum of holiday entitlement (at 5.6 weeks where the contract is in place for the full year), irrespective of the number of hours, days or weeks that the worker may in fact have to perform under the contract.

Significance

The Supreme Court’s judgment is eagerly anticipated, because we hope it will provide much need clarity for employers who engage workers on irregular hours.

If the Court of Appeal’s decision is overturned, it will legitimise the practice of calculating holiday entitlement as 12.07% of pay for irregular workers. However, if the Court of Appeal’s decision is upheld, it will confirm the anomaly that those who work only part of the year might end up receiving more pay for their holiday than those who work full time. Moreover, given the prevalence of the 12.07% Method currently, employers will have to evaluate their practices when it comes to calculating holiday pay and change them (if they have not already done so); and may face claims from affected workers in respect of underpaid holiday pay. It may also lead employers to reconsider the use of permanent contracts for casual workers, instead engaging such workers on short-term contracts as and when required.