Background
The topic of holiday pay has been repeatedly rearing its head in the Employment Tribunal (ET) for the last few years. While the rules on overtime and commission and their relation to the calculation of holiday pay are reasonably settled, there are other holiday issues still causing consternation for employers.
One such question is the calculation of both holiday entitlement and holiday pay for casual (zero hours) workers. A ‘regular’ full-time employee (with the same contracted hours each week) is entitled to at least 5.6 weeks’ (28 days’) leave per year. However, the calculation of entitlement can be trickier for workers with no normal hours.
One approach is to calculate holiday entitlement for casual workers at 12.07% of the hours that they have worked. This accrual rate derives from the fact that the standard working year is 46.4 weeks (52 weeks less the statutory 5.6 weeks holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks.
However, while that calculation can help to calculate determine holiday entitlement for casual workers, the employer in this case found that it cannot equally be applied to holiday pay.
The facts of the case
Mrs Brazel worked as a music teacher under a casual contract. Her work was undertaken mainly during term time, which usually involved working from 32 to 35 weeks per year. Mrs Brazel’s employment contract reflected the statutory minimum for holidays, i.e. 5.6 weeks’ holiday per year, which had to be taken during school holidays.
The issue of Mrs Brazel’s entitlement was not a problem, but the Trust calculated her holiday pay using the 12.07% rule outlined above, i.e. her holiday pay was limited to 12.07% of her earnings for that year. Mrs Brazel disagreed with this calculation, and told the Trust that they should be taking an average of her earnings over the previous 12 weeks, as outlined in the relevant legislation.
The Trust disagreed, on the basis that as a term time employee her average weekly pay was higher than other employees. As an example, if she worked 32 weeks in a year then an average week’s pay would equate to 17.5% of her earnings as opposed to 12.07% for someone who worked 46.4 weeks. Following the Trust’s refusal to change their calculation, Mrs Brazel brought a claim of unlawful deductions from wages.
The ET and EAT’s decision
At the ET, the Trust reiterated its stance that Mrs Brazel’s holiday pay should be reduced pro-rata because she worked fewer weeks than the standard working year, and that not doing so was putting her in a better position than employees not on term time contracts.
Mrs Brazel stated that the legislation took into account that part-time workers undertake less work in a year than full-time colleagues. She further argued that, while the law was designed to ensure that those working part-time receive at least as much as those working full-time, there was nothing in the law to suggest that the Trust’s approach to pro-rate her holiday pay to prevent her being better off than full-time colleagues was correct.
The ET preferred the Trust’s argument and dismissed her claim. It found that the legislation should be interpreted as being capped at 12.07% of hours worked for part-time workers who worked fewer than 46.4 weeks per year, and that words should be inserted into the relevant statute to that effect.
Mrs Brazel then appealed to the Employment Appeal Tribunal (EAT), who overturned the ET’s decision.
The EAT held that the law did not require employers to pro-rate holiday pay to ensure that they were not put in a better position than full-time employees. In short, the spirit of the legislation is to ensure only that part-time employees were not put in a worse position than full-time comparators, and not vice versa.
The EAT stated that calculating Mrs Brazel’s holiday pay should be straightforward, i.e. by taking an average of the previous 12 weeks, as outlined in the legislation. The fact that this calculation might favour someone in Mrs Brazel’s position, i.e. a term time employee, did not necessitate changing the wording or effect of the law.
The EAT therefore sent the case back to the ET to calculate the underpayments due to Mrs Brazel based on the 12 week rule.
What does this mean?
This case will arguably have less impact than Fulton v Bear Scotland and Lock v British Gas (the landmark overtime and commission cases that have been the stars of the last few years). That is mainly because this case relates to a casual term time worker, which is a relatively uncommon working pattern.
However, employers in education (and any others who may operate such a pattern) should take note of the EAT’s stance on the calculation of holiday pay for such workers. While determining the hours of holiday accrued can still be done using the 12.07% rule, working out holiday pay for such workers should be based on an average of the previous 12 weeks.
Another important point is that employers should only include weeks in which the employee actually worked when calculating the average pay. This means that, in a term time situation (for example), if the employee worked in only six of the previous 12 weeks, the employer will have to look back even further when calculating the average, as any weeks in which no work took place should be discounted.
If you have any questions on any of the issues raised in the above article, or if you would like further advice on calculating holiday entitlement or pay, please contact Seanpaul McCahill.