The UK Supreme Court earlier this week sided with the Court of Appeal in the case of a school music teacher engaged on a zero-hours contract providing lessons during term times. The ruling has implications for holiday leave and pay calculations for contingent work arrangements, employment businesses and others that employ workers on permanent contracts who work part of the year.

This appeal raises an important issue about the statutory leave requirement for part-time workers who may also be described as part-year workers, namely workers who work for varying hours during only certain weeks of the year but have a continuing contract throughout that year. These workers neither work the full number of hours worked by full time workers nor the full number of weeks worked by part-time workers. Their work is irregular.

The Supreme Court said the issue in the case is whether their leave entitlement is calculated on the same principle, proportionally, as full-time employees (which would mean that the weeks that they do not work reduce their entitlement) or whether their leave must be calculated ignoring those weeks.

The latter would leave them with a leave entitlement which proportionally exceeds that of other employees. Nonetheless, the Court of Appeal held that the proper construction of the domestic law led to that result and further that such a construction was consistent with the applicable EU law.

This ‘part-year worker’ arrangement has been a common model among umbrella companies and similar workers.

Law firm Osborne Clarke said the judgment will lead to major changes in some contingent workforce arrangements in the UK, and some claims.

“This will affect not only traditional employers with relevant part-year workers but also a lot of umbrella companies, employer-of-record companies, some industrial staffing companies and perhaps some gig worker platforms where workers are engaged on an overarching employment basis and work only part of a year,” Osborne Clarke states.

In the case, the respondent, Mrs Brazel, is a visiting music teacher at a school run by the appellant, the Harpur Trust. The Harpur Trust accepts that Brazel is a “worker” within the meaning of the WTR (Working Time Regulations) as they applied during the period covered by this appeal.

This means that she was therefore entitled to 5.6 “weeks” of paid annual leave in the leave year. The arrangement between the parties is that Brazel takes her annual leave during the school holidays, when she is not required to give lessons. This would also mean that she in fact received proportionately more paid holiday than a colleague who worked on a full-time basis.

The Supreme Court referred to the WTR’s method of calculating leave as the Calendar Week Method.

The Harpur Trust contended that a part-year worker’s leave entitlement must be prorated further to take account of the weeks not worked. The Harpur Trust argue that the domestic provisions prescribing how to calculate holiday entitlement and holiday pay must be interpreted so as to comply with what it refers to as “the conformity principle”.

That principle, they say, emerges from the case law of the Court of Justice of the European Union interpreting the provisions of the Working Time Directive. The amount of annual leave should, in accordance with the conformity principle, reflect the amount of work that Brazel actually performs during the annual leave year.

The Supreme Court had rejected the Harpur Trust’s other methods of calculating holiday pay, including multiplying earnings by a factor of 12.07% (which seeks to take into account how statutory leave relates to a working year) and which had been previously recommended in Acas (The Advisory, Conciliation and Arbitration Service) guidance but has since been removed.

“The 12.07% calculation is very widely used in flexible-working situations including in rolled-up holiday-pay arrangements. Only arrangements where the worker was engaged on an overarching or "permanent" contract, albeit with zero hours, are affected by this decision,” Osborne Clarke stated.

Lorraine Laryea, Recruitment Standards Director at the Recruitment & Employment Confederation (REC), said, “The Supreme Court judgment in the case of Harper Trust v Brazel has profound implications for holiday pay calculations for people who are engaged on a permanent contract of employment, but who only work for part of the year. In particular, recruitment businesses that use an employment model to engage their temporary workers, or work with an umbrella company, will be immediately affected.”

“Employers in this situation should review their current contractual arrangements and assess their potential liability to back pay holiday pay,” Laryea said. “The method of calculating holiday entitlement and pay will also need to be amended in accordance with the Supreme Court’s decision. The judgment very clearly addressed the position of a part-year worker engaged on a full contract of employment, and while this is not the type of contract used by the majority of agencies for their temporary workers, the REC will nevertheless be reviewing our template contracts in light of the decision. REC members should check our website or call the legal helpline for further information.”

Laryea continued, “The case highlights the difficulty of applying the Working Time Regulations to non-standard working patterns and adds weight to our argument for a review of the holiday pay legislation to meet modern working practices.”

Osborne Clarke added that employers, including certain staffing companies, online staffing platforms and umbrella companies, will now need to revisit their contractual arrangements and holiday pay calculations for part-year workers, as well as understanding any existing liabilities for unlawful deduction of wages and/or under the WTR.

Many will need to review the way part-year zero hour contracts are structured, the law firm warned, adding that workers often like this sort of contract because it gives them the flexibility to work around their other personal commitments. However, it added that unless practices and contract structures are changed (as many have already been in anticipation of this case) the arrangements may become significantly more expensive for operators and users of those arrangements including in many zero hours, agency worker and umbrella worker situations.

“Overall this represents another development that operators and users of umbrella companies and other flexible workforce models will need to stay on top of, alongside greater HMRC scrutiny of aggressive tax avoidance arrangements used by some, but not all, umbrella companies,” Osborne Clarke added.