The High Court has granted an injunction to prevent Tesco supermarket from terminating and re-engaging its staff in order to force through contractual changes intended to withdraw a ‘guaranteed’ financial benefit.
USDAW and others v Tesco Stores Ltd  EWHC 201 (QB)
Between 2007 and 2009, Tesco had negotiated arrangements for the payment of ‘Retained Pay’ as an incentive for staff employed at its distribution centres to relocate, rather than losing them through redundancy. This was a protected sum representing the difference between the employees’ existing contractual reward package and the new terms and conditions that would apply after relocating.
Following agreement with the recognised trade union (USDAW), staff were told that the entitlement to Retained Pay would remain in place for as long as they were employed in their current role, it could not be negotiated away and would increase each year in line with any general pay rise. It was described as “guaranteed for life”.
In January 2021, Tesco announced that it was proposing to remove the Retained Pay and would offer employees a lump sum incentive payment equivalent to 18 months’ Retained Pay in return for giving up the entitlement. Those employees who did not accept the offer and agree the change to their contractual terms would be dismissed and offered re-engagement on new terms, excluding Retained Pay.
USDAW sought a declaration from the High Court that the affected employees benefitted from an implied term that would prevent Tesco from exercising its right to terminate their contracts in order to remove the right to Retained Pay. It also sought an injunction to prevent Tesco from terminating the employees’ contracts.
High Court decision
The High Court agreed, on the “extreme” facts of this case, that there was an implied term that Tesco would not terminate the employees’ contracts in order to remove the right to Retained Pay. It therefore granted an injunction to prevent Tesco from terminating the contracts for this reason.
The court was satisfied that it was the clear intention of the parties that the Retained Pay would apply for as long as the relevant employee was employed by Tesco in the same substantive role. It was satisfied that there was an implied term to the effect that Tesco would not exercise its right to give notice to terminate for the purpose of removing the entitlement to Retained Pay. It would still have the right to terminate the contracts for ‘good cause’ (for example, redundancy or gross misconduct).
Consequences of this decision
The practice of firing and rehiring has been widely criticised in recent months, with concerns raised in Parliament last year and new guidance on making changes to employment contracts published by Acas (see our previous article).
It is unusual for an injunction to be granted in circumstances where an employer is prevented from exercising its right to serve notice of termination, and this decision may well be the subject of an appeal by Tesco. In its judgment, the Court emphasised the “extreme” nature of the facts on which it based its decision to grant an injunction.
In practice it will be rare for an employment contract to include such a provision for a ‘permanent’ benefit, but it is notable that the Court took into account the wording of various communications to the staff in addition to the contractual wording, to determine the intention of the parties. The decision serves as a warning to employers to ensure that contractual benefits, and communications to staff about any benefits, are carefully worded to permit future flexibility.
These articles are from the February 2022 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website. For further information please contact a member of Birketts’ Employment Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2022.