Supreme Court Holiday Pay ruling – 12.07% is unlawful

The Supreme Court have dismissed the Harpur Trust appeal against the Court of Appeal ruling on percentage holiday pay scheme being unlawful.

The court confirms that the minimum holiday pay due must comply with the Employment Rights Act 1996 (and as amended) under section 224.

The case related to a Part Year Worker who until 2011, had holiday pay calculated in accordance with Section 224 ERA 1996.

In 2011 the employer changed to a former ACAS promoted method of operating a 12.07% basis based on actual work time. This was ruled by the Court of Appeal as being unlawful and did not provide the employee with the Working Time Regulation 13 and 13a annual entitlements or pay under ERA. ACAS withdrew recommendations of the 12.07% methods as a result as there was no legal basis for its application and practice.

The original requirements of section 224 was that holiday pay was calculated and paid on a basis of the 12 week average earnings up to the Saturday prior to leave with zero pay weeks being excluded from the average.

With more recent changes to the Employment Rights Act, the requirement is now to undertake a 52 weeks average calculation ignoring zero pay weeks in Great Britain (the 12 week average requirement continues in Northern Ireland).

The appeal was also made on a basis of the conformity principle to the EU working time directive, however the Supreme Court rules that this does not prevent Domestic Law from being more generous and therefore that appeal point fails.

It is confirmed that Mrs Brazel did suffer an unlawful deduction from wages and was entitled to Holiday pay on the basis set out in the Working Time Regulation and the Employment Rights Act.

Employers who are operating a percentage method for determining holiday pay will need to review and revise their method of operation to ensure that it meets the requirements of the Working Time Regulations and the Employment Rights Act. These do not permit employers to contractually apply alternate methods which would result in lower payments of holiday pay.

The concept that part time workers would be better off than full time workers was not accepted and ‘not so aburd’.

The appeal was unanimously dismissed.

PAYadvice will provide some more details once the Supreme Court ruling is published in full.

PAYadvice.UK 20/07/2022

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