The Supreme Court blocks Tesco’s plans to fire and rehire employees

The Supreme Court blocks Tesco’s plans to fire and rehire employees

In Tesco Stores Limited v USDAW and others the Supreme Court has imposed an injunction preventing Tesco from using a “fire and rehire” strategy to remove retained pay.

Background

As a way to incentivise existing employees to relocate to their other redistribution sites, in 2007 Tesco agreed to pay employees who agreed to relocate retained pay (RP). This was first agreed in a collective agreement between Tesco and its trade union, the Union of Shop, Distributive and Allied Workers (USDAW) and then incorporated into the employees’ contracts as an express term. The term stated that RP would ‘remain a permanent feature’ of an employee’s contractual entitlement subject to certain qualifications. The contracts also contained a separate term that gave Tesco the right to dismiss an employee without cause, provided they give specified notice.

Tesco sought to end RP in these contracts in 2021 by informing employees that if they did not agree for RP to be removed, they would be dismissed and offered reengagement on the same terms but with the RP term removed.

In response, several employees and the USDAW applied to the High Court for an injunction to prevent Tesco from terminating their employment in order to remove the RP term. The High Court allowed the claim and granted the injunction. Tesco then appealed this decision which the Court of Appeal allowed.

The employees and USDAW appealed to the Supreme Court to overrule the Court of Appeal’s decision.

Key Issues and Judgement

The main issues the Supreme Court considered were:

  1. What was the correct interpretation of the express term concerning RP?

The use of the words ‘permanent feature’ in the RP term meant that the right to RP was not limited to a specific timeframe and would be paid to employees for as long as their employment in the same role continued. This right was only subject to two express qualifications set out in the RP term. As Tesco also had the right to dismiss employees by notice for any reason, the promise that RP would be a ‘permanent feature’ of the employee’s contractual entitlement would be undermined if Tesco had the ability to unilaterally remove this right by dismissal on notice.

The Supreme Court also considered if there was an implied term in the contract that restricted Tesco from exercising their right to dismiss the employees on notice for the purpose of removing their right to receive RP. The Supreme Court applied the test of business efficacy and determined that it was necessary to imply a term in the contracts to restrict Tesco’s right to dismiss on notice so that it could not be exercised for the purpose of removing the employee’s right to permanent RP. The purpose of the implied term was to qualify Tesco’s right to terminate on notice rather that contradict it so Tesco would still be entitled to dismiss employees for other reasons but not for the sole purpose of removing their right to permanent RP.

  1. What was the correct remedy – damages or an injunction?

Granting an injunction would amount to indirect specific performance of Tesco’s obligation to continue to provide RP to the eligible employees. Courts are often reluctant to grant an injunction that requires a party to take an action, rather than refrain from an action, especially in relation to employment contracts.  The court noted that there are two exceptions to this general approach: where damages are inadequate and where there was no breakdown in mutual confidence between employer and employee.

The court found that on these facts there had been no breakdown of mutual confidence as Tesco had no issues with the employees work performance and were happy to offer these employees a new contract on the same terms except as to RP. The court also decided that damages would be inadequate because of the difficulties of assessment.

The Supreme Court therefore allowed the appeal and the injunction granted by the High Court would be reinstated.

Commentary 

While the Supreme Court acknowledged that the facts of this case were rare, this case should make employers who wish to change the terms of employees’ contracts aware of the potential problems that may arise.  ‘Fire and rehire’ approaches need careful consideration of the contractual terms and employers must ensure that a fair and proper procedure is followed.  With the new Labour government intending to change the law around ‘fire and rehire’ this case may be indicative of further challenges that could arise.

If you would like advice or help with changing terms of employment, please get in touch at [email protected].

Thelma Brako
Article contributor, Thelma Brako, Trainee Solicitor