The Supreme Court handed down its unanimous judgment dismissing the Respondent's appeal and ruling that the holiday entitlement of a permanent employee who works only part of the year cannot be prorated to that of a full-year worker. Instead, they are entitled to 5.6 weeks' holiday per year, even though this results in an entitlement that is proportionately more than that of a full-year worker. This article considers the implications for employers of the judgment in this case which we highlighted as one to watch in our pre-2022 round-up.

Background

The Claimant, Ms Brazel, worked as a "visiting music teacher" for the Respondent, The Harpur Trust (Trust). Ms Brazel was classed as a "part-year worker", namely a worker who only works during certain weeks of the year but is employed on a permanent contract. Ms Brazel only worked during term-time and her hours depended on the number of pupils requiring tuition.

According to her contract of employment, Ms Brazel was entitled to 5.6 weeks' paid holiday (as per the statutory minimum provided under the Working Time Regulations 1998 (WTR)) which were to be taken during the school holidays. A "week's pay" for the purposes of holiday pay is regulated by the Employment Rights Act 1996 (ERA). In cases where a worker has no normal working hours, the method set out in the ERA was to take the worker's weekly remuneration over a 12-week reference period (the reference period has since been extended to 52 weeks).

The Trust took the view that Ms Brazel's holiday pay should be prorated to reflect the weeks that she actually worked and applied the ACAS guidance applicable at the time that holiday entitlement of 5.6 weeks was equivalent to 12.07% of hours worked over a year. The Trust calculated Ms Brazel’s holiday pay entitlement at the end of each term (April, August and December), paying her holiday pay of 12.07% of her earnings for that term. Mrs Brazel argued that this was wrong and that the correct approach was to take an average of her weekly remuneration for the 12 weeks prior to the calculation date. This method would result in her receiving a higher proportion of her annual earnings as holiday pay than a full-time employee.

Ms Brazel brought claims of unlawful deductions from wages and less favourable treatment based on part-time status. The Employment Tribunal initially dismissed her claim, which, after a series of appeals, was finally considered by the Supreme Court.

Supreme Court decision

The Supreme Court considered whether it was lawful to prorate a part-year worker's holiday entitlement using the Trust's method.

The Supreme Court found that Ms Brazel, and other part-year workers, are entitled to 5.6 weeks' holiday, regardless of the fact that they do not work throughout the whole year. This entitlement does not need to be proportional to what a full-year worker would receive. Whilst the Working Time Directive provides that workers must have a minimum of four weeks of annual leave in each year, it is open to member states, as the UK once was, to provide a more generous entitlement. The UK has provided for more generous holidays and so every employee is entitled to 5.6 weeks. Further, while part-time employees must not be treated less favourably than full time employees, there is no rule that those working part time cannot be treated more favourably.

The Court acknowledged that the application of this ruling would lead to "odd results in extreme cases". For example, an exam invigilator who has a permanent contract to work 40 hours a week for three weeks a year, earning £1,000 for each week worked, will now be entitled to £5,600 in holiday pay. The Supreme Court was satisfied that this is the correct application of the WTR. Even though some "odd results" will pop up because of the ruling, such results are not "absurd" enough to justify wholesale changes to the WTR.

It is now settled that employers must not prorate holiday entitlement for part-year workers based on the amount of work done by the worker. However, their holiday pay will still be based on their earnings during the reference period as set out in the ERA.

Implications for employers

Many employers may have been adopting a "wait and see" approach whilst the case wound its way through the courts. However, the Supreme Court decision is final. Employers who have part-year workers will now need to review how they calculate holiday entitlement and, if they have been prorating holiday entitlement for such workers, change their processes. In many cases, part year contracts may no longer make sense.

It is too early to tell whether the ruling will result in a deluge of cases challenging holiday entitlement, but it is certainly a risk. All employers should review their atypical working arrangements to quantify the extent of any potential exposure. The implications for employers depends on how many part-year workers they employ. Employers such as education providers or seasonal employers in particular may find themselves exposed to risk.

Employers also need to be aware of the risk of claims for historic unlawful deduction from wages from part-year workers whose holiday entitlement has been prorated. Certain employers, dependent on their exposure to such claims, may wish to take a proactive approach and provide back-payments in respect of any underpayment. Others may wish to sit on their hands and wait to see if a claim reaches their door.

Whilst the Supreme Court decision relates only to permanent part-year workers, employers should be wary as other employees with atypical working arrangements may also make similar challenges on the back of this decision.