The Court of Appeal has made a recent and very significant decision on part-time holiday – The Harpur Trust v Brazel. Perhaps unexpectedly, the Court of Appeal has confirmed that permanent workers who work for only part of the year are nonetheless entitled to the full 5.6 weeks of holiday pay provided as a legal minimum for full-time workers.

It was previously understood that the full entitlement could be pro-rated down to reflect the proportion of the year not worked in these cases. In practice, this was generally done by applying a 12.07% uplift to the pay received by a part-time employee to calculate their holiday pay entitlement, which was in accordance with ACAS guidance. Giving a full 5.6 weeks will, in many cases, result in a higher percentage payment. In addition, the actual entitlement may also be difficult to work out where hours fluctuate. This is a potentially significant windfall to part-year workers, who will now receive proportionally more holiday pay than their full time equivalents.

The primary impact of this decision will be felt in education and related areas where part-year working in the form of term-time only work is widespread. However, there are other areas which engage employees on a part-year basis for various reasons. We’ve already taken a number of calls from clients concerned by this decision, and have prepared this Q&A to assist.

Q1: Which employees/workers are affected?

This does not impact on part-time workers who work throughout the year doing reduced hours within the week. E.g. a worker who works Monday-Thursday only, or mornings only. It only affects ‘part-year’ workers e.g. those who work term-time only, or have seasonal periods of working and not working.

Further, it only affects ‘permanent’ workers. However, there is very limited discussion in the judgment about what will and won’t amount to ‘permanent’ employment for this basis. Different holiday provisions apply to the first year of employment in any event, so genuine short-term engagements should not be problematic. Also, engagements through agencies or of genuine freelancers should similarly not be affected. What will be caught, however, is the sort of permanent zero-hours contract which Ms Brazel (the Claimant in this case, who was a music teacher employed by a school to give individual instrument tuition) was employed under and which is an increasingly common way of engaging casual staff. Equally, permanent staff with regular part-year hours, such as many term-time only positions in schools and other educational establishments are going to be affected. Teachers and academics, who are paid on a full-year basis throughout school ‘holiday’ periods, are unaffected.

Q2: Do I have to increase holiday pay?

If this decision stands, it means that affected workers are entitled to 5.6 weeks leave and pay, even where they would have accrued less than this under the 12.07% pro-rated approach. The leave itself is unlikely to be an issue – it’s intrinsic to part-year working that there will be additional non-working days compared to full-year workers. So the key issue is pay.

The first thing to check is what any affected workers are being paid already. The decision doesn’t mean that part-year workers must always get the same holiday as full-year workers – it means that the differential can’t take them below the 5.6 week statutory minimum. Therefore, if your full time holiday entitlement exceeds the statutory minimum (e.g. if you offer five weeks plus bank holidays) then you may find that, even when pro-rated down, your part-year employees still get the 5.6 week minimum. This should be fairly easy to calculate and check where you have workers who work fixed hours across a fixed number of weeks in the year.

Where you have workers on flexible hours, it is much harder to assess what weekly pay is, in order to ensure they get 5.6 weeks. Under the formula provided by the legislation, the weekly pay figure is changeable, based on an average of the previous 12 weeks (discounting weeks with no earnings) before leave is taken. The weekly amount will therefore vary for different periods of leave, and it becomes much more important to specify what counts as annual leave and what is simply non-working time. The complexity of this calculation is part of the reason why the simple 12.07% calculation has become more widespread! Mathematically, any worker who works only part of the year will be entitled to more holiday pay under this mechanism than under the simple 12.07% averaging mechanism. How much more will depend on the number of weeks worked (the more time off they have in a year, the more they stand to benefit) and the pattern of hours through the averaging periods.

It is worth noting that from next year it is anticipated that an amendment to the regulations will move us from a 12-week average to an annual average, which ought to help simplify matters to some extent. However, if the Brazel decision still stands, part-year employees will still be entitled to more holiday pay than was understood to be the case previously.

Q3: You’ve said ‘if it still stands’ – does that mean this isn’t the last word?

Possibly. There is still one level of domestic appeal (to the Supreme Court), although only the most significant cases get permission to appeal to that level and a Court of Appeal decision would normally be the last word.

There is also a possibility – and perhaps a more likely one – that the government may amend the Working Time Regulations to expressly allow for pro-rating for part-year employees. It seems clear from the Brazel decision that EU permits a pro-rata approach to be taken and that this is done in other EU jurisdictions, so (even leaving aside Brexit) there would be no bar to the UK government changing the regulations to restore the position as previously understood.  Obviously, the fact it can be done doesn’t mean it will be done – and predicting the legislative agenda at the current time is more speculative than  ever…

Finally, assuming that Brazel does stand as the leading authority, there will inevitably be further decisions which flesh out how it is to be applied in particular circumstances. We would expect more case law on which workers are deemed to be ‘permanent’ for these purposes, and on the intricacies of the calculations applicable in different scenarios.

Q4: So what should we do?

Step one is to audit your risk if the decision does stand. Key questions are:

1.       Which employees are affected?

It should be easy to identify your part-year workers. What might be harder is assessing whether they are likely to count as ‘permanent’. This is a key area of uncertainty at the moment, but we are happy to discuss our client’s current contracts and the practicalities of working arrangements to try to give you the best possible steer on whether a particular group of workers are likely to fall into scope.

2.       How much holiday are they getting already?

If you are paying the basic 12.07% uplift, then there will definitely be some further payment due under the Brazel approach. If you are paying more, then, depending on the number of working weeks, you may be over the 5.6 weeks minimum in any event. A good step is probably to look at a few sample cases to work out the likely shortfall.

3.       What is the overall exposure?

As a worst-case scenario, you should prepare to adjust your holiday pay going forward to take account of the increased amounts due. Claims could also include back-pay, although this would be limited to two years.

4.       Do we start to make additional payments and/or change contracts now?

We wouldn’t advise rushing to make additional payments or change contracts immediately. There is a danger that you could be caught out by further changes to the legislation or further case law developments. If, following the steps above, you have identified a significant exposure, appropriate arrangements should be made to ensure contingency funds are available in the event of future claims and/or necessary contractual changes. If you are in a contact review cycle anyway, or if there is pressure from unions to act, it may be worth adopting a holding position whereby your contract sets out a pro-rating approach, but confirms that all employees will be paid a top-up at the end of the annual leave year in the event that the payments through the year fall below the legal minimum. You might also wish to consider making such additional payments on an ex-gratia basis at the end of the current leave year to preserve employee relations, whilst also protecting your position to revert to the previous position depending on how the law develops. We can assist with wording around either of these approaches.  As any contractual change would ultimately be in favour of the relevant employees, there should be no issue with making amendments to the contract by a simple letter of variation when the time is right to do so.

Conclusions

We hope this is a useful starting point to assessing the impact of Brazel on your part-year workforce and your wider business. Please do contact us for further advice tailored to your particular circumstances.

This article is for general guidance only. Reliance should not be placed upon it nor should action be taken without obtaining advice about specific circumstances.

If you would like further advice tailored to your particular circumstances, please give us a call.