The law on holiday leave and pay in the UK is continually developing. The Court of Appeal has recently ruled on another holiday entitlement case, holding that permanent employees, who work for only part of the year, are entitled to a minimum of 5.6 weeks and that employers cannot pro-rate their holiday entitlement to reflect the number of weeks actually worked.

The case involved a part-time music teacher who was engaged under a permanent zero-hours contract and was entitled to 5.6 weeks paid holiday. During the term she had no normal working hours but the employer paid her an agreed hourly rate which applied to her hours worked in the previous month.  As the employee worked in a school she was required to take her 5.6 weeks holiday during the school holidays and the employer made three equal payments in respect of the annual leave in April, August and December. The issue that arose was the method of calculating her holiday pay by the employer.

The employer adopted the ACAS guidance for calculating holiday pay for casual workers that the holiday pay should be calculated as 12.07 per cent of her earnings (i.e. to represent the fact that the standard working year is 46.4 weeks). The employee claimed that the amount of the “week’s pay” for holiday pay purposes should follow the calculation set out in section 224 of the Employment Rights Act 1996 (ERA) for workers without normal working hours, which involves taking the average earnings over the preceding 12 weeks.  This in fact would result in her receiving holiday pay of around 17.5 per cent of her earnings.

An employment tribunal dismissed the employee’s claims. It held that the principle of pro rating should apply. On this basis wording should be read into Regulation 16 of the Working Time Regulations 1998 (WTR) which included that holiday pay should be capped at 12.07 percent of annualised hours. The EAT however, upheld an appeal by the employee on the basis that there was no reason for the tribunal to depart from the plain statutory language.  The employer then appealed.

The employers principal argument was that it was necessary to pro-rate the employee’s holiday pay entitlement to reflect that fact that she works only part of the year in order to avoid obviously unjust results which cannot have been intended. It also relied on EU cases which held that periods of holiday leave should be calculated by reference to the periods of actual work completed.

The Court of Appeal dismissed the employer’s appeal. The Court accepted that the EU authorities established that the Working Time Directive requires only that workers should accrue entitlement to paid annual leave in proportion to the time that they work.  This accrual approach relates specifically to entitlement to annual leave and has no effect on the assessment of the remuneration to be paid in respect of that entitlement.  It is also not mandatory and so Member States can adopt more favourable arrangements.

With regard to the domestic law, the Court acknowledged that, while it may be surprising that the holiday pay to which part year workers are entitled represents a higher proportion of their annual earnings than in the case of full-year workers, it is not obviously unfair. These workers are on permanent contracts and it was not unreasonable to treat that as a sufficient basis for fixing the amount of holiday entitlement irrespective of the number of hours, days or weeks that the workers might in fact have to perform.  In addition, the Court pointed out that assessing the holiday entitlement could involve difficult factual questions.  How would an employer determine what should count as full-year hours?   It would also be impossible to calculate the worker’s accrued leave entitlement until the end of the year and difficult to calculate the amounts due in lieu of untaken holiday on termination.

The Court accepted that applying the terms of the WTR without a pro rata reduction for part-year workers could produce odd results in extreme cases (for example a cricket coach or exam invigilator only required for a limited number of weeks in the year), but held that general rules sometimes produce such anomalies. In any event it would be unusual for those individuals to be employed on permanent employment contracts. As a result the Court of Appeal agreed with the EAT and held that on any natural construction the WTR make no provision for prorating.  The legislation simply requires that the week’s pay should be identified in accordance with the ERA and that figure should be multiplied by 5.6.   Attempting to build in a pro-rating or accrual system would be a substitution of an entirely different scheme.

It is important to note that this case is concerned only with part year employees who are on permanent contracts. It does not apply to workers who work part time in other ways, for example for only part of the week.  Those employees can easily be given an entitlement to 5.6 weeks, but of course they are actually relieved from working only on those days on which they would otherwise have worked.  In addition their holiday pay can easily be calculated.  It is however likely that other employees, such as casual workers may seek to rely on this claim.  The Court of Appeal did however, emphasise the point that this case was in relation to an employee on a permanent contract.

For those “part-year” workers, employers should be considering their approach if they currently adopt the 12.07 per cent approach. Employees may be able to bring claims in relation to their holiday pay going back for a period of up to two years. It is hoped that the ACAS guidance will be updated to provide clarity.