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Significant High Court decision on “fire and re-hire” practices

The High Court has granted an injunction restraining Tesco from ‘firing and rehiring’ employees in order to remove a contractual entitlement to enhanced pay.  

The practice of firing and re-hiring is sometimes used by employers, normally as a last resort, as a way to impose contractual changes on employees.  It is a controversial area and, in response to a recent Acas report, the government has confirmed that it will not yet introduce “heavy-handed legislation” to prevent fire and re-hire practices.  The case of USDAW and ors v Tesco Stores Ltd provides an important development to the law in this context.

Facts

Between 2007 and 2009 Tesco gave certain employees a contractual “permanent” entitlement to “Retained Pay” which was negotiated with trade union USDAW as a retention incentive, at a time when Tesco was reorganising its distribution centres.  The Retained Pay was to last as long as the employee stayed in the same role and could not be negotiated away.

In January 2021, Tesco announced its intention to remove Retained Pay. It offered a lump sum payment of 18 months’ Retained Pay in return for giving up the entitlement, failing which employees would be dismissed and offered new terms excluding Retained Pay.

USDAW applied to the High Court seeking an injunction preventing Tesco from terminating the contracts, and a declaration that the contracts were subject to an implied term prohibiting dismissal in these circumstances.

High Court Decision

The High Court granted the injunction finding:

1.  Looking at the background and intention of the contracting parties, a reasonable person would construe “permanent” to mean “for as long as the relevant employee is employed by Tesco in the same substantive role”. However, this gives rise to a conflict between the permanent right to Retained Pay and the contractual right for Tesco to terminate employment on notice;

2.  A term should be implied into the employment contract of each affected employee that Tesco could not terminate the employment contract for the purpose of removing or diminishing the right of an affected employee to Retained Pay;

3.  Tesco remained free to terminate an affected employee’s employment contract for good cause (e.g. genuine redundancy or gross misconduct), albeit that the practical effect of doing so would be to bring the entitlement to Retained Pay to an end; and

4.  Damages were not an adequate remedy given that the claimants remedy would be limited to the losses recoverable in any claim for unfair dismissal.

The High Court made an order restraining Tesco from giving notice to terminate the employment contract of an affected employee contrary to the implied term, and from otherwise withdrawing or diminishing, or causing the withdrawal or diminution of, Retained Pay, from any affected employee other than in accordance with the express entitlement.

Permission to appeal was refused.

Comment

Whilst this case clearly turns on its own facts, described as “extreme” by the Court, it provides a significant development in the law relating to implied terms and “permanent” contractual benefits.

When making decisions around pay or other benefits, employers should think very carefully about the scope of the offer and consider, for example, whether to make them time-bound or conditional in an effort to maintain flexibility should it be needed in future.

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