Harpur Trust -v- Brazel: new Government consultation launched

The UK Government is likely to overturn the Harpur Trust -v- Brazel Supreme Court judgment by reducing holiday entitlement for part-year workers after commencing consultation.

Background

Most workers have a right to at least 5.6 weeks of paid annual leave per year. However, applying this to workers only working for part of the year can lead to unfair outcomes. As such, most employers pro-rated annual leave entitlement to make it proportionate to the amount of work actually performed each year. Most employers granted an entitlement equivalent to 12.07%* of hours worked to part-year workers

However, the Supreme Court in Harpur Trust -v- Brazel decided that the Regulations do not permit annual leave to be pro-rated for part-year workers.

Why has the Government launched a consultation?

The guidance to the Consultation states that:

“As a result of this judgment (Harpur Trust -v- Brazel), part-year workers are now entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year.

The Government is keen to address this disparity to ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working.”

What will holiday entitlement be?

The guidance to the Consultation states that:

“Allowing employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion with the total annual hours they work. The simplest way to do this would be to introduce a 52-week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period.”

The guidance proposes basing both holiday pay and entitlement on a 52-week reference period, but points out that employers may not, “have to use the exact same 52 weeks’ worth of pay data to calculate holiday pay and entitlement for a worker with irregular hours or part-year worker.”

What is a fixed reference period and why is the Government proposing this?

The guidance proposes using a fixed 52-week reference period, stating that it would operate as follows:

“At the beginning of a new leave year, the worker’s holiday entitlement would be calculated based on the previous 52 weeks. This would give a worker a fixed pot of annual leave that they would then be able to draw from throughout the leave year, in line with how the legislation works for workers with regular hours.”

This would not apply to the first year of employment, which would be based on the accrual of annual leave monthly.

The fixed 52-week reference period could lead to unfairness if an employee increases their working hours the next year but has only a small amount of annual leave entitlement based on the previous year. Indeed, this system could deter workers from increasing their hours.

The guidance acknowledges that an alternative is a rolling period, whereby, “each time a new week is complete, the oldest of the 52 weeks is pushed out of the reference period by the new week of data.” This would cause slight variations in annual leave entitlement on a week-by-week basis. The guidance points out that a rolling period may make it difficult for employers and employees to plan how to use annual leave due to uncertainty as to how much time off will accrue per year.

What should employers do now?

At this early stage, we cannot be certain that legislation will pass through Parliament or the timescale for this. Although some employers will be tempted to wait for new legislation before reviewing their annual leave systems, the risk is that claims may arise in the meantime and thus employers would be well advised to assess their exposure to potential liability. The difficulty is that employers would then have to review their annual leave systems twice. As this may be an onerous undertaking, many employers will feel that waiting is worth the risk.

Responses to the consultation can be completed online here: Calculating holiday entitlement for part-year and irregular hours workers. Responses can also be emailed to: holidayentitlementconsultation@beis.gov.uk.

The consultation lasts eight weeks and ends on 09 March 2023.

* 12.07% is equivalent to 5.6 ÷ 46.4, where 5.6 is the statutory annual leave entitlement and 46.4 is the number of working weeks in a year after statutory annual leave is deducted.

Please note that this information is for general guidance only and should not substitute professional legal advice. If you have specific concerns, we recommend consulting one of our legal experts.