Zero hours and annual leave

Many employers choose to calculate holiday pay for their zero hours workers as 12.07% of their normal pay. A recent decision by the Employment Appeal Tribunal, Brazel -v- The Harpur Trust (2018), may lead to some employers rethinking this.

Facts

Mrs Brazel was engaged by the Harpur Trust as a Visiting Music Teacher at Bedford Girl’s School. As would be expected, most of her work was carried out during school term-time. Terms would be between 32 and 35 weeks long. According to her contract of employment, Mrs Brazel was entitled to 5.6 weeks holiday. She was paid holiday pay at a rate of 12.07% of her normal pay. She brought a claim of unlawful deduction from wages on the basis that she had not been paid correctly. The Trust had relied on the ACAS Guidance, ‘Holidays and Holiday Pay’ (November 2014), but that was not necessarily up-to-date or binding.

The Employment Tribunal Decision

The Employment Tribunal dismissed her claim. The way in which a worker’s holiday pay should be calculated is set out at Section 224 of the Employment Rights Act 1996. A worker is entitled to be paid at the rate of a week’s pay for each week of annual leave. For a worker with no normal working hours, this should be their average weekly pay in the preceding 12 week period. In arriving at that calculation, no account should be taken of any week when the worker received no pay, and any earlier weeks (in which they were paid) should be brought forward as part of the 12 week period to be taken into account. In other words, for a term time worker like Mrs Brazel, the calculation should be the previous 12 weeks of term time (when she was working) but not any weeks in holiday (when she wasn’t). However, the Tribunal thought that the system of adopting 12.07% was fair as it ensured part-time workers and full-time workers were treated no less favourably than each other, in accordance with the pro rata principle. In an unusual move, the Tribunal decided that the Working Time Regulations would need to be interpreted subject to additional wording, which the Tribunal set out, in order to achieve this.

The Employment Appeal Tribunal Decision

The EAT upheld Mrs Brazel’s appeal, and overturned the Tribunal’s Judgment. It is obviously a very significant step for a Tribunal to attempt to ‘rewrite’ legislation to correct a supposed error. In this case, the EAT considered that the exercise was “relatively simple” – Mrs Brazel’s entitlement to holiday pay was clearly set out in her contract of employment (which mirrored her statutory entitlement) and as Section 224 of the Employment Rights Act 1996 applied, that was how her holiday pay should have been calculated. As the EAT pointed out, where a worker works a similar working pattern for each week throughout the year, their holiday pay would be 12.07% of their annual wage. However, for a part-time worker who works a 32 week term, their holiday pay could be as high as 17.5% of their annual wage.

The pro rata principle should not prevent that. This was designed to ensure that part-time workers were not treated less favourably than full-time workers. In certain circumstances, such as these, part-time workers could be treated more favourably.

Conclusion

Whilst the judgment will obviously be of great benefit to term-time workers, the underlying principles will apply to all casual or zero hours workers, who do not have a normal or usual working pattern, and whose hours of work fluctuate greatly between one working period and the next. For example, some workers who know they will be going on an extended holiday may choose to work as many shifts as are made available in order to boost their income. In this case, the difference between their earnings during a working period as against their subsequent non-working period/holiday will be quite significant. There may be other reasons why a worker’s working pattern may vary, perhaps with one week on or one week off. Calculating their holiday pay according to Section 224 of the 1996 Act, by ignoring non-working weeks, may lead to a higher figure than simply paying a fixed rate of 12.07%.

Paying the fixed rate of 12.07% is clear, easy to manage, and understood by both employers and workers, but it has always created the risk that employers may fail to pay their workers their full entitlement to holiday pay. This case has highlights those risks. In those situations, it may be necessary to calculate a worker’s holiday pay by looking at their average pay over the preceding 12 week period from the date they take holiday, as complicated as that would be. Since some workers may benefit from a flat rate, whilst others may lose out, there is likely to be ongoing uncertainty. The fact that this also means part-time workers could be treated more favourably than full-timers, although unusual is likely to be an unintended consequence of the way the legislation was drafted.