Article 7 of the EU’s Working Time Directive (WTD) outlines that workers in Member States should be provided at least four weeks of paid annual leave in one leave year. In Great Britain, the Working Time Regulations 1998 (WTR) provide workers a minimum of 5.6 weeks of paid annual leave. The Regulations dictate that workers should be paid at the rate of a week’s pay in relation to each week of leave.
If workers do not have normal working hours, section 224 of the Employment Rights Act (ERA) outlines that their holiday pay is calculated by averaging their weekly pay over the previous 12 weeks. However, things get difficult when considering permanent members of staff who only work for part of the year, such as casual workers or those with very irregular hours.
Acas advises that workers in this situation should accrue paid holiday entitlement at a rate of 12.07 per cent of hours worked. This figure is calculated by taking 5.6 weeks away from 52 weeks to find the standard working year of 46.4 weeks. 5.6 weeks is 12.07 per cent of 46.4 weeks.
The claimant in this case operated as a music school teacher. As part of a zero-hours contract, she worked at a school on a regular basis and was only paid for the work she carried out. Generally, she worked for around 32 hours per week. As the school year provided more holidays than the statutory minimum, her paid holiday entitlements were calculated by assessing her earnings at the end of each of the three school terms and working out one-third of 12.07 per cent of that figure. The school believed that that this was in keeping with guidance from Acas.
The claimant argued that this system did not comply with the provisions of the WTR and therefore and did not provide her the holiday pay that she was entitled to. When applying the calculation as outlined in section 224, assuming she did work 32 weeks in one leave year, her holiday pay actually worked out at 17.5 per cent of her total annual pay.
The claimant later brought a claim to the employment tribunal (ET) for unlawful deductions from wages. The tribunal dismissed her claim, finding that the school had calculated her holiday pay correctly by applying the pro rating principle.
The claimant appealed to the Employment Appeal Tribunal (EAT), who ruled in her favour. They found that section 224 provided a simple and straightforward method of calculating pay for irregular workers.
In forming their decision, the EAT held that although part-time workers could not be treated any less favourably than full-time workers, the WTR did not provide any requirement to pro rata holiday pay for part-time employees to ensure that full-time employees were not treated any less favourably.
COURT OF APPEAL
The organisation appealed to the Court of Appeal. They argued that it was necessary to reduce the claimant’s holiday entitlement in order to avoid unjust results. If the employee was provided holiday pay at the rate of 17.5 percent, it would result in other workers on zero hour contracts who worked for lesser proportions of the year, such as a school cricket coach, being entitled to significant holiday pay that would exceed that of a full-time staff member.
The Court of Appeal dismissed this appeal. The Court first identified the claimant as someone who did not work throughout the year and was therefore a ‘part-year worker’. They went on to outline that the WTD only requires workers to accrue annual leave in proportion to the time they work, something the Court labelled the ‘accrual approach’. However, this does not apply to the remuneration for that leave. The WTD therefore placed no requirement on member states to pro rata leave entitlements of ‘part-year workers’ to that of ‘full-year workers’.
Turning to domestic law, although they acknowledged that it may seem surprising that part-year worker holiday pay could represent a higher proportion of their annual earnings that full-year workers, this was not ‘unprincipled or obviously unfair’. The important factor to consider was that part-year workers are on permanent contracts and it was not therefore unreasonable to treat that as a sufficient basis for fixing the quantum of holiday entitlement.
The Court did accept that this ruling could lead to odd results in ‘extreme cases’, such as the school cricket coach example mentioned earlier, but concluded that it would be unusual for an individual who only worked a few hours a year to be on a permanent contract.
This is a very important case that provides clarity for organisations when calculating holiday pay for irregular workers. Although the Judge was clear on the fact that this ruling only applies to those who work unusual hours but are on permanent contracts, it may still result in other ‘part-year’ employees and workers raising the issue of holiday pay and potentially bringing claims. It is unlikely that this will be limited to just those working in schools.
What is clear is that this is a Court of Appeal decision and will therefore be taken into account by future tribunals. Organisations are advised to evaluate how this affects their holiday pay calculations and ensure they are following the legal provisions as outlined in section 224.