The recent Watford Employment Tribunal judgment in the case of Gee, Carter and Legge v Haberdashers' Aske's Boys' School (Habs) serves as a reminder to charities of how to calculate holiday pay for atypical workers such as casual, shift or on-call staff.
Habs is an independent school in Hertfordshire operated by the Haberdashers' Aske's Charity. It employs Leon Gee, Roger Carter and Howard Legge as visiting music teachers (VMTs) under contracts that do not specify normal working hours - their hours vary according to the demand for tuition. In common with the general practice for teachers, they are paid in 12 equal monthly instalments.
Following implementation of the Working Time Regulations in 1998, the VMTs alleged that they were entitled to a pay rise to reflect holiday pay. Habs contended that their pay had always included an element of holiday pay and, accordingly, there was no such entitlement. This dispute continued for about 10 years.
After the European Court of Justice ruled in 2006 that so-called 'rolled-up' holiday pay was unlawful, the VMTs raised grievances, which were unsuccessful. In late 2010, they issued claims in the Watford Employment Tribunal, alleging that Habs had paid them a rolled-up rate of pay and had failed to pay them in respect of their statutory right to paid holiday, which amounted to unlawful deductions from their wages.
The legal decision
The key question was whether the payments Habs made to the VMTs during their holidays related to hours they had worked (but which happened to be paid over the holiday period) or whether the monthly payments they received included statutory holiday pay.
Habs established that the VMTs' hourly rates were directly derived from the annual rate for full-time teachers, who were paid for work and holiday time. On this basis, the tribunal found that the VMTs were paid holiday pay during periods of holiday and commented that the system was no more rolled up than any normal remuneration system based on work undertaken over the year and divided into equal instalments. The claims therefore failed.
Lessons for charities
There is conflicting case law on this issue, but the government's view is clear - holiday pay should be paid when the worker actually takes the holiday and contracts that include rolled-up holiday pay should be renegotiated. So the safest approach is for charities not to use rolled-up holiday pay.
Charities should ensure that contracts clearly state how holiday will be accrued, taken and paid. If they propose changes, they should consult with workers with a view to obtaining their agreement to those changes in order to minimise the risk of breach of contract and constructive dismissal claims.
It might be helpful to express holiday accrual for atypical workers in percentages (the statutory holiday entitlement is equivalent to 12.07 per cent of hours worked over a year - that is, 5.6 weeks holiday divided by 46.4 weeks worked, multiplied by 100).
Victoria Willson is a partner at Levenes Employment, third sector specialists