Under the Working Time Regulations 1998 ("WTRs") workers are entitled to 5.6 weeks' paid annual leave, with part time workers entitled to a pro-rated amount. The calculation is relatively straightforward for workers with normal working hours, however where a worker has no normal working hours it can become more difficult. Under the Employment Rights Act 1996 if an employee has no normal working hours it is necessary to calculate their holiday pay based on their average weekly remuneration in the previous 12 weeks (excluding any weeks where no remuneration was payable and instead using earlier weeks where remuneration was paid).
Due to the complexities that this calculation can cause for casual and irregular hours workers, many employers have historically calculated holiday pay on the basis of 12.07% of pay for each hour worked. This is on the basis that the 5.6 weeks' leave entitlement under the WTRs amounts to 12.07% of a person's working hours and so it was assumed that this calculation could also be used to calculate pay as well as leave. However, this case shows the importance of distinguishing between how the amount of leave entitlement for a casual worker is calculated and how the pay for that leave is calculated, as the same approach does not work for both.
Background
Mrs Brazel is a clarinet and saxophone teacher and is employed by the Trust as a "visiting music teacher". That label means that she does not have a set number of hours and instead works in a given school term when needed to tutor pupils in her instruments. Her hours varied but were typically between 20 and 30 half hour lessons per week. The length of the school terms were between 32 and 35 weeks per year in total.
Mrs Brazel was paid monthly based on an agreed hourly rate applied to the hours worked in the previous month. The employment contract continued during the holidays but Mrs Brazel did not have substantial duties to fulfil outside of term time.
Under the contract Mrs Brazel was entitled to 5.6 weeks' paid holiday each year and was required to take this leave during school holidays. By agreement, the Trust made three payments in respect of her leave in April, August and December, calculated at 12.07% of her earnings for the previous term.
Mrs Brazel brought a claim arguing that she had been underpaid and that her holiday pay should be calculated by reference to the average earnings over the preceding 12 weeks immediately prior to the end of the three terms. This would result in holiday pay of around 17.5%. Mrs Brazel brought a claim for unlawful deductions from wages.
Employment Tribunal
The Tribunal rejected Mrs Brazel's claim and found that words could be read into the WTRs to the effect that holiday pay could be based on 12.07% of hours worked when a worker works fewer than 46.4 weeks.
The EAT
The EAT disagreed and found that the 12 week average calculation should be made as required by the WTRs and the Employment Rights Act 1996.
The Court of Appeal
The Court of Appeal agreed with the EAT and found that it was wrong to read words into the WTRs allowing term-time only workers to have their holiday pay capped to 12.07% of annualised hours. The Court went on to say that to add the pro rata requirement or an accrual system into the WTRs would be substituting an entirely different scheme.
The Court of Appeal acknowledged that holiday pay to which a part-year worker is entitled represents a higher proportion of their annual earnings than in the case of a full-year worker, however the Court did not consider this to be unfair. The Court stated "It is important to appreciate that the workers in question are on permanent contracts. It does not seem to me 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: it is important not to lose sight of the fact that the actual days from which they will be relieved, and the quantum of their holiday pay, will reflect their actual working pattern."
Comment
Many employers have used the 12.07% method to calculate holiday pay as a pragmatic option where the worker does not have normal working hours. The administrative burden of calculating holiday pay based on the previous 12 weeks average weekly remuneration each time holiday is taken is considerable in many cases. However, this case highlights the risk to employers of using this solution. Employers with workers who have no normal working hours and who do not work the full year (such as term time only workers) should calculate the possible liability following this decision. Consideration should be given to potential back-pay claims and to correcting the pay method going forwards.
If you need any further advice with regard to this decision and its impact on your organisation please do get in touch.
