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Full-time workers are entitled to 5.6 weeks’ paid holiday under the Working Time Regulations 1998 (“WTR”). However, calculating what constitutes a weeks’ pay can be difficult where workers work variable hours or have variable elements of pay such as commission or overtime pay. This has been the subject of a series of litigation over the last decade, with the two most recent case were heard by the Supreme Court in 2022.

The first case related to the calculation of holiday entitlement for workers who work only part of the year. Many employers use a percentage accrual method to calculate holiday entitlement for such workers. Where the worker does not receive any excess contractual entitlement over and above the statutory entitlement, a holiday accrual rate of 12.07% of hours worked is commonly used. However, the Supreme Court held in the case of Harpur Trust v Brazel [2022] UKSC 21 that the percentage method is inconsistent with the WTR. It held that the 5.6 weeks' annual leave entitlement for employees under the WTR should not be pro-rated for part-year workers.

In this case, Mrs Brazel worked as a part-year music teacher in a school run by the Harpur Trust on a zero hours contract. In 2011, the Harpur Trust changed how it calculated her holiday entitlement to the percentage accrual method. This resulted in Mrs Brazel receiving less holiday pay than she had received under the previous calculation method. Consequently, Mrs Brazel made a claim to the Employment Tribunal. The Harpur Trust argued that the new calculation reflected the hours she actually worked. Rejecting the Harpur Trust’s argument, the Supreme Court stated that the WTR do not require the holiday entitlement of part-year workers to be pro-rated. This case may lead to other part-year workers seeking to make claims for unlawful deduction from wages where they have not received 5.6 weeks holiday entitlement. It should be noted, however, that a Claimant only has three months from the latest deduction to bring such a claim.

A further important holiday pay case heard by the Supreme Court in December 2022 was the appeal against the Northern Ireland Court of Appeal decision in Chief Constable of the Police Service of Northern Ireland and another v Agnew and others [2019] NICA 32, which  concerned the extent to which employees can recover underpayments of holiday pay. The Northern Ireland Court of Appeal had held that where a series of unlawful deductions in respect of holiday pay can be linked, the series would not be broken by gaps of more than three months or a correct holiday pay payment during a gap. This differs from the position that tribunals had been applying since the decision in Bear Scotland v Fulton [2014] UKEATS/0047/13 (“Bear Scotland”), where the Employment Appeal Tribunal held that a gap of three months or more between holiday pay underpayments will break the series of underpayments. Under the Bear Scotland decision, an employee cannot bring a claim for any holiday pay that was underpaid before the series was broken, for example where an employee does not take annual leave for three months after an underpayment, or if they are paid correctly for three months after an underpayment. The decision in Bear Scotland curtailed the ability to claim historical underpaid holiday pay. Furthermore, following the Bear Scotland decision, a two-year backstop was introduced to prevent employees claiming holiday pay after two years in the UK, excluding Northern Ireland.

While the Northern Ireland Court of Appeal’s decision is only binding in Northern Ireland, the Supreme Court’s decision will be binding across the UK. If the decision is upheld in the Supreme Court, this will change the way underpayments are calculated and may affect ongoing holiday pay disputes in the rest of the UK.

The outcome of the Supreme Court’s decision is expected in 2023.