School's out as holiday pay ruling lands
Holiday pay for those who work only part of the year and have no contractually set hours should be calculated on the basis of average earnings, the Supreme Court has confirmed.
In a judgement that is likely to mean higher holiday pay payments for many in the education sector, with the possibility of claims for unlawful deductions where pro-rata calculations have been made in the past, the Supreme Court dismissed an appeal over the ruling in The Harper Trust v Brazel.
The Supreme Court reinforced that holiday pay for part-year workers should be calculated using the averaging method on earnings over the 52-week period prior to taking leave, rejecting Harper Trust’s argument that a part-year worker’s leave be calculated on a pro-rata basis to account for weeks not worked.
The case was brought by part-time music teacher Lesley Brazel who worked term-time at a school on a permanent contract of employment but was paid only for hours worked. These varied from term to term, depending on the number of children taking music tuition. Under the terms of her contract she was entitled to holiday of 5.6 weeks – in line with the statutory entitlement – and was required to take that holiday out of term time, with her holiday pay calculated on a pro rata basis.
But the Court of Appeal ruling, upheld by the Supreme Court, said there was no reason to pro-rata entitlement as the Working Time Regulations state that holiday pay should be calculated in accordance with the week's pay provisions of the Employment Rights Act 1996. Where a worker does not have normal working hours, this is taken to be the worker's average weekly pay in the 52 weeks before the leave starts, excluding any weeks in which no remuneration was payable.
Amendments to the Working Time Regulations introduced in April 2020 extended the reference period for calculating the average week’s pay due for statutory leave to 52 weeks from the 12 weeks which was in force at the time of the original claim by music teacher Lesley Brazel.
“Holiday pay continues to be a minefield. Many employers have used a pro-rata calculation of annual pay to work out holiday pay for part-year workers who do not have normal working hours, and while some may have adopted the averaging method following the Court of Appeal’s judgement, this further ruling by the Supreme Court may result in a flurry of historic claims“, said employment law expert Danielle Lister of Chattertons Solicitors.
“A full review of holiday pay is a good idea, to be sure employers are keeping up to date on this front and complying with the current law, although the case does demonstrate just how difficult the issue of holiday pay is for employers to navigate, as this particular area of law has been in a constant state of flux for a number of years now. However, trying to remain up to date with legal developments on the issue, and re-evaluating holiday pay practices in line with developing case law should allow employers to hopefully get it right for the future while also identifying any retrospective issues which could be subject to a claim for earlier unlawful deductions.”
If you are an employer, or employee who needs guidance on any of the above matters, we are here to help. Please do not hesitate to contact our friendly Employment Law team on 01205 351114 or 01636 593505.