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The Brazel case was due to be considered by the Supreme Court (the highest court in the UK) on 9 November 2021. The decision of the Supreme Court will relate specifically to the particular facts and circumstances of Mrs Brazel’s case, but it will also have wider implications for the calculation of holiday pay for workers with unusual working hours.
If the Supreme Court rejects Harpur Trust’s appeal
As a result of the Court of Appeal’s decision in the Brazel case, the current law requires that employees such as Mrs Brazel, who are employed on a permanent contract of employment, should receive a full 5.6 weeks’ paid holiday each year regardless of whether there have been periods during the year when they have done no work. Their holiday entitlement cannot be prorated to reflect the number of weeks actually worked. The effect of this is that the 12.07% accrual method cannot be used in respect of permanent employees who have breaks in-between assignments because it will produce an inaccurate holiday pay entitlement (specifically, one which is too low).
Harpur Trust has appealed that decision, but if the Supreme Court rejects the Trust’s appeal then the legal position will remain as set out above.
The Court of Appeal classified Mrs Brazel as a “permanent” employee, which the Court defined as someone employed under a permanent, continuing, contract of employment (including during periods when they do not do any work).
In our view, Mrs Brazel’s contract is therefore similar to that of an umbrella employee who is employed under an overarching contract which remains in force even while the employee is in-between assignments. We therefore believe that the Court of Appeal’s decision (if upheld by the Supreme Court) means that the 12.07% accrual method cannot be used to calculate the holiday entitlement of umbrella employees who are engaged under a permanent contract of employment if there are any breaks in-between the employee’s assignments (or between the end of their last assignment and the termination of their employment). To put it another way, employees engaged under a permanent contract continue to accrue holiday in-between assignments (because their employment contract continues in-between assignments).
Appreciably, this creates significant financial, commercial and practical difficulties for umbrella employers, such as ourselves. This is not helped by the fact that the Court of Appeal has not set out a mechanism for how such employees’ holiday entitlement should be calculated instead, save to say that by the end of the holiday year they should have received 5.6 weeks’ holiday pay calculated by taking the employee’s average weekly pay and multiplying it by 5.6. Unfortunately, the Courts are concerned only with the legal position and they leave it to employers to grapple with how to implement the law in practice.
The most significant aspect of the Court of Appeal’s decision in the Brazel case is that the judgment relates specifically to employees who have a permanent contract of employment. The Court of Appeal contrasted this to a “casual” employee who would only be employed on an assignment-by-assignment basis, with no overarching contract of employment existing in-between assignments.
A “casual” employee is therefore similar to a worker engaged under a contract for services model whereby no contractual relationship exists between the parties outside of an assignment. Alternatively, a casual employee could still have a contract of employment (rather than a contract for services) but one which is not overarching/permanent, i.e it is a fixed-term employment contract limited to the duration of the assignment. Once the assignment ends, the contract of employment would end, and a fresh contract would need to be entered into before a new assignment begins. However, for administrative reasons the latter approach is unlikely to be attractive in respect of multiple, short-term assignments.
At present, it is generally accepted that where a worker is engaged under a contract for services model, there is only a contractual relationship between the parties whilst the worker is actually on an assignment. Since the worker therefore doesn’t have a contract which confers worker status in-between assignments, they would not continue to accrue holiday in-between assignments. It’s important to be aware, however, that the Brazel case could potentially pave the way for casual workers who are not employed on a permanent contract to seek to run the same argument as Mrs Brazel that their holiday pay should not be subject to the 12.07% cap. It remains to be seen whether such an argument would succeed.
If the Supreme Court allows Harpur Trust’s appeal
On the other hand, if Harpur Trust’s appeal is successful, then this may pave the way for umbrella companies to continue using the 12.07% accrual method to calculate holiday pay (but always bearing in mind the risks with this approach, given that it is not a calculation which is set by legislation). It will be important to understand the Supreme Court’s reasoning in their judgment before making any changes to the way in which holiday pay is calculated.
Whichever way the Supreme Court’s decision goes, we anticipate that ACAS will update their guidance to assist employers with calculating annual leave and holiday pay entitlements.We await with bated breath.
