Supreme Court: no fire and rehire for Tesco employees
12 September 2024
The Supreme Court has handed down an important decision on whether an injunction should be upheld to prevent Tesco from ‘firing and rehiring’ a group of employees in order to remove a contractual entitlement to enhanced pay.
Tesco Stores Ltd v USDAW [2024] UKSC 28
Facts of the case
Staff employed at certain Tesco distribution centres were entitled to receive contractual ‘retained pay’. This had been agreed with the recognised trade union, USDAW, under a collective agreement as an incentive for staff to relocate in 2007. It was presented to the staff as a permanent entitlement that would remain unless it was changed by mutual consent, or if an individual was promoted or changed their working pattern.
In January 2021, Tesco announced its intention to remove the entitlement to retained pay, offering a lump sum payment of 18 months’ advanced retained pay to employees in return for their consent to the change. As an alternative, it proposed to dismiss the employees and re-engage them on new terms that excluded the retained pay entitlement.
USDAW applied to the High Court for a declaration that an implied term of the employees’ contracts prevented Tesco from exercising its right to terminate and re-engage for the purpose of removing the right to retained pay. It sought, and was granted, an injunction preventing Tesco from terminating the affected contracts
The Court of Appeal allowed Tesco’s appeal against the injunction. The High Court had been wrong to find that it was the mutual intention of Tesco and USDAW for the contracts to continue for life, or until normal retirement age, or until the closure of the site concerned. It was also not the intention that the circumstances in which Tesco could bring the contracts to an end should be limited.
Supreme Court’s decision
The Supreme Court has now overturned the Court of Appeal’s decision, upholding USDAW’s appeal and re-instating the injunction to prevent Tesco from dismissing and re-engaging the employees. The Court held that Tesco’s right to terminate the contracts of employment was a qualified right, which could not be exercised for the sole purpose of depriving the employees of their right to receive retained pay. It found that the term was an incentive for employees to undertake an otherwise unpalatable relocation, rather than taking redundancy, making it inconceivable that the objective mutual intention of the parties was that Tesco should retain a unilateral right immediately to dismiss these employees for the purpose of removing the right to retained pay.
Since there had been no breakdown of mutual trust and confidence between Tesco and the employees, the Supreme Court decided that it was appropriate to order ‘specific performance’ of the employment contract and to reinstate the injunction to prevent Tesco from dismissing the employees. Damages would not have been an adequate remedy in the circumstances.
The Birketts view
Giving employees a ‘permanent’ contractual entitlement, such as the one given to the Tesco employees in this case, is unusual in practice. One of the key points for employers resulting from the case is that they should be mindful of how any such entitlements are drafted. In reaching its decision, the Court also took into account the wording of various communications made to the staff in advance to determine the intention of the parties. The decision therefore serves as an important warning to employers to ensure that contractual benefits, and communications made to staff about any benefits, are very carefully worded and permit future flexibility.
It is very rare for an injunction to be granted to prevent an employer from dismissing an employee, but in this case the Court stressed that Tesco’s right to dismiss for any reason other than to remove the right to receive retained pay, was entirely unaffected.
The ability for employers to ‘fire and rehire’ employees has been the subject of much media, and political, scrutiny in recent years. A new Code of Practice, setting out the process for employers to follow when considering the possibility of dismissing and re-engaging staff on new contractual terms, took effect on 18 July 2024. This looks set to be further strengthened under the forthcoming Employment Rights Bill, with the Labour Government promising to reform the law to “provide effective remedies and replacing the previous Government’s inadequate statutory code”. The penalties for not following due process, which currently allow for an uplift of up to 25% compensation, are likely to be significantly strengthened. This means that it will be even more important for employers to follow a comprehensive and well-planned process before reaching the decision to dismiss.
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Liz Stevens
Services
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 September 2024.