What Harpur Trust v Brazel means for umbrella companies and their contractors holiday pay

The long-awaited judgment in Harpur Trust v Brazel was handed down on Wednesday, July 20th 2022, with potentially huge financial implications for umbrella companies and umbrella company contractors, writes Rebecca Seeley Harris, founder of ReLegal Consulting.

In short, the Supreme Court has agreed with the Court of Appeal that workers are entitled to 5.6 weeks of holiday a year -- the same as full-time employees. 

What Harpur Trust v Brazel was based on

This case was based on the interpretation of statute and what the European Working Time Directive and the domestic Working Time Regulations had meant to achieve. The argument for music teacher Mrs Brazel and Unison, which joined as an intervener, was that the statute did not allow for holiday entitlement to be pro-rated. 

For many years, holiday pay has been calculated based on the 12.07% formula which was proposed by ACAS. Harpur Trust had used this method to calculate Mrs Brazel’s holiday pay. Her pay was pro-rated on the basis that she didn’t work full-time, so was not entitled to the full-time entitlement. Harpur Trust were not alone in using this percentage formula. Indeed, it was used universally.

Amended guidance

It is interesting to see that both ACAS and the guide provided by the Department of Business, Energy and Industrial Strategy “Holiday Pay - Guidance on calculating holiday pay for workers without fixed hours or pay” (“the BEIS Guidance”), have now been amended. 

In fact, both were amended after the Court of Appeal decision in 2020. They now state that the employer should not 1) apply the ‘percentage method’ and 2) include in the holiday reference period any whole week in which no pay was received.

Incidentally, the BEIS Guidance refers to a 52-week reference period. That is because, as a result of amendments to the WTR introduced with effect from April 6th 2020, the reference period applicable for calculating the average week’s pay due for statutory leave was increased from the 12-week period (that is set in section 224 of the 1996 Act) to 52 weeks.

Extreme complication

The problem that the Supreme Court had with the two methods proposed by the Harpur Trust is that for a worker working an irregular number of hours per week over the course of the year, the calculations are extremely complicated. The proposed scheme would require all employers and workers to keep detailed records of every hour worked, even if they were not paid at an hourly rate!

So, what now? Well, all employers now have to use the ‘Calendar Week Method’ which effectively gives a worker working irregular hours more holiday entitlement than a full-time worker but, that, according now to the Supreme Court, is the correct interpretation of the statute.

In short, the amount of leave to which a part-year worker under a permanent contract is entitled is not required by EU law to be, and under domestic law is not, prorated to that of a full-time worker.

How does this aspect of Brazel V Harpur Trust affect contractors?

If a contractor is working through an umbrella company, they may well now be entitled to back-dated holiday pay to make up for the shortfall. This would be the difference of what they have been paid and what they should have been paid, assuming they have been paid at all!

If you include the judgment from Pimlico Plumbers in the Court of Appeal in March 2022, the amendments that need to be made to the Working Time Regulations are now critical. But as with the advice before, this is still case law and there is no automatic right unless and until it is transposed into statute.

My recommendation for contractors, ahead of umbrellas potentially folding

The best advice I can give to contractors in light of this potentially hugely significant judgment is, at the time when it is transposed into statute, then approach your umbrella company and ask what their policy is. It is likely that they will not have changed their policy but, they should now do so. Of course, the other very real potential problem is that the umbrella company simply cannot afford to pay out the shortfall in holiday pay and for some umbrellas, this may actually mean going into administration.