21 April, 2023
As many in the education sector know, the Supreme court handed down a landmark judgement in July 2022, ratifying the decisions of the Employment Appeal Tribunal and Court of Appeal, in dismissing the appeals of the Respondent Academy Trust in Harpur Trust v Brazel. Whilst some time has passed since the judgment was handed down, many institutions are still grappling with what it means in practice, and whether changes need to be made to payroll in order to avoid, or at least minimise, future risk.
Essentially, the Supreme Court ruled that any worker who has a continuing contract throughout the year, but only works for certain periods during the year (such as term time only workers) must have their holiday pay calculated in the same way as colleagues who work the entire year. The Supreme Court dismissed the argument that employers should be able to reduce part-year workers' holiday entitlement on a pro-rated basis equivalent to the number of hours they work.
This long awaiting judgement was expected to have implications across the education sector, in particular for Higher Education Institutions ('HEIs') which operate with a substantial number of employees on term-time, seasonal and zero-hour contracts.
The Working Time Regulations 1998 (WTR) entitles all workers to 5.6 weeks' paid leave each year. However, when it comes to applying this legislation in practice the position has always been more complicated for those members of staff who have variable hours and do not work throughout the year ('Part Year Workers').
The approach taken by many was to apply a formula which was set out in the ACAS guidance for calculating holiday pay for Casual/Part Year Workers. This formula took the fact that the statutory holiday entitlement of 5.6 weeks under the WTR was equivalent to 12.07% of a full-time employee's hours. Therefore, to calculate the holiday pay for those who did not work a full year employers could take 12.07% of their annualised hours to calculate holiday entitlement. This is known as the Percentage Method.
This approach was taken by Harpur Trust, a Charitable Trust that run a number of Independent Schools. Mrs Brazel was a visiting music teacher employed by the Trust. Mrs Brazel was employed, during term time only, on a zero-hours contract with working hours that varied each week. She typically worked 32 weeks per year over three terms. Following ACAS guidance on the holiday pay of Casual Workers, the Trust calculated holiday pay at 12.07% of her annualised hours, which was payable in instalments at the end of each term.
This was contested by Mrs Brazel as non-compliant with the WTR. Mrs Brazel argued that her holiday pay should have instead been calculated under s.224 of the Employment Rights Act 1996, by using the 12-week reference period to calculate how much she had earnt during that 12-week period to base holiday pay on. This is the calculation which is used for employees who work variable hours per week, but are employed throughout the year. This is known as the Calendar Week Method. Crucially the Calendar Week Method discounts periods where the worker is not paid.
Following the decision handed down in Harpur Trust v Brazel, the Supreme Court has now confirmed the decisions of the Employment Appeal Tribunal and the Court of Appeal, that the Calendar Week Method is the right means of calculating holiday pay for Part Year Workers.
Fundamentally, the decision means that anyone engaged under a year-round contract is entitled to 5.6 weeks of holiday pay, regardless of whether they work throughout the entire year or only part of the year. In this sense Part-Year Workers can be distinguished from Part-Time Workers (although theoretically an individual could be both). Part Time Workers, i.e. workers who work all year round but for less than a full-time equivalent number of hours, such as those on a 0.5 contract for example, can still have their 5.6 weeks' of holiday pay pro-rated down to reflect how many working days they work in a standard working week.
HEIs in particular employ a substantial number of employees on part-year/term time only contracts such as specialist subject teachers, research staff and facilities and administrative staff. The ruling means that HEIs will need to recognise the impact of the decision and immediately implement the new process for calculating holiday pay for part-year workers or they may risk future claims for unlawful deduction of wages or breach of contract.
Providers also need to be aware that liabilities for such claims can go back two years from the date of any claim issued. Any employee wishing to bring such claim must do so within 3 months of the last underpayment, so this does protect employers to an extent, if practices were changed in light of earlier Court decisions or in any event more than three months ago.
Moving forward it is important that providers within the education sector with employees on a variety of contracts carry out a full audit to identify which members of staff may be classed as part-year workers and review these contracts to understand where they may have potential issues. By doing so employers will have a clearer picture of any potential liabilities that could still be brought where time limits allow. Institutions should be looking at all contracts where they calculate holiday pay based on a percentage calculation and look at what changes need to be made to pay holiday pay correctly.
Contractual reviews for all employees have the potential to be an administrative burden, especially for those HE and FE providers with hundreds of employees on different types of contracts, however they are important. For some institutions, the next steps may include looking to alternative options for engagement of staff that can be implemented moving forward.
For example, some providers are now considering whether it would be lawful, and practically possible, as well as socially responsible, to implement a designated period of holiday per year which would enable them to direct that the 5.6 weeks' holiday be taken by employees during the summer term. This would ensure any holiday entitlement and pay liability is met regardless of whether an employee works full time or for part of the year.
Further, employers can potentially consider whether contract revisions would be appropriate bearing in mind any applicable governance, regulatory or procedural requirements. Short, fixed term contracts where there are no weeks within the contracts where individuals aren't working could be a viable option to minimise the risk of liability. Employers will however need to be aware that a successive number of fixed-term contracts can become permanent contracts in some situations. When considering this option, it is also important that institutions recognise the consequences associated with fixed term contracts which may not only impact upon recruitment capabilities and retention rates, particularly in the current climate where many may seek job security, but could also have consequences on industrial relations with trade unions and other employee organisations who are likely to take issue with the use of particular types of contracts as an attempt to circumvent the newly confirmed legal position.
It is undoubtable that the decision handed down in Harpur Trust v Brazel has caused a lot of confusion for employers. One of the primary concerns resulting from the judgement is that part-year workers are entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year and the discrepancy can in some cases be significant.
In order to address the disparity, on 12 January 2023 the government issued a consultation paper to try and understand the implications of the judgement on different sectors including those in the Education sector. The paper seeks the input of both employers and workers to try and ensure that any changes made as a result of the consultation, do not have an adverse effect upon other aspects of the legislation.
The suggestion within the consultation period to remedy this situation is to amend the calculation so that the reference period will also include weeks where the employee has worked. This should largely remedy some of the biggest issues caused by this judgement. For instance, an employee who worked 35 hours a week for only 8 weeks of the year and worked at no other time of the year would get 5.6 weeks holiday based on them working for 35 hours a week, this would effectively mean they get another 5.6 weeks at close to full pay. Under this proposed change they would instead have their holiday pay based on them working 35 hours for 8 weeks a year, and 44 for the rest of the year which will bring down the holiday pay considerably.
The Consultation closed on 9 March 2023, and the government response is currently eagerly awaited. Colleges and Universities will be keen to receive further definitive guidance on how to calculate annual leave going forwards, and in the meantime many institutions are choosing to continue with the status quo, which is understandable given the logistical and financial implications of the alternative. Quite simply the position right now is watch this space!
For bespoke advice on how your institution can minimise the risk of future claims arising from this judgment please do not hesitate to contact us.
Learn more about our Education department here