News & Insights

Fire and rehire

In a recent case the High Court has made the step of granting an injunction which prevents Tesco from “firing and rehiring” employees in order to remove their contractual entitlement to enhanced pay.

The employees were due a retention incentive when Tesco was reorganising its distribution warehouses back in 2007. At the time the incentive was offered, it was described as being a “permanent” incentive and would last as long as the employee was in the role.

The case concerned 42 members of the The Union of Shop, Distributive and Allied Workers (USDAW) trade union. USDAW was recognised by Tesco for collective bargaining. In 2007 – 2009 USDAW and Tesco agreed the arrangements for the retention incentive. It would be an individual contractual entitlement. Tesco had been wary of losing staff to redundancy due to the number of workplace closures it had organised. To keep staff and encourage relocation, this retention payment incentive was as an alternative to redundancy and incentivised employees to stay on and relocate. This incentive was given a monetary value and Tesco made it clear in communications to staff that it would remain for as long as the employee was employed. A collective agreement in 2010 stated it was a permanent feature of the individual’s contractual entitlement that could not be negotiated away.

Last month Tesco announced that it would remove the retention pay incentive. Tesco would offer a lump sum payment in return for giving up the entitlement. If employees refused, they would be terminated and re-hired on a new contract that did not include the retention pay incentive. USDAW responded by seeking an injunction to prevent Tesco from using this “fire and rehire” tactic.

The High Court granted the injunction. The rationale centred on the meaning of the word “permanent”, and it was the court’s opinion that a reasonable person would understand “permanent” to mean “for as long as the relevant employee is employed by Tesco”. The Court found that this was a clear indication of the parties’ intentions and justification of why this incentive was originally introduced. Had the wording not been so clear and the terms limited, the employees who signed up to the incentive may not have been so enticed.

This case is definitely not a complete bar to companies using “fire and re-hire”, but it does flag that the contractual terms need to be carefully considered first.  In these unusual set of facts, the Court felt it was necessary to imply a contractual term into the contract to prevent Tesco from exercising its right to terminate on notice for the purpose of removing or diminishing the employee’s entitlement to the retention pay. It is important to note that an injunction such as this is very rarely seen in the UK and a point to take away from this case is to make sure careful attention is given to any contractual changes including how they are communicated and, if benefits are awarded, it can be beneficial to build in an element of flexibility when drafting such clauses.