Why care?

In USDAW and others v Tesco Stores Ltd the High Court has prevented Tesco from dismissing and re-engaging employees in order to remove a contractual entitlement to enhanced payments. The decision highlights the risks involved for employers when relying on fire and rehire as a means to implement changes to contracts of employment.  

Facts

Between 2007 and 2009 Tesco and USDAW (a recognised trade union by Tesco for collective bargaining) agreed for Retained Pay to be paid to staff, as an alternative lump sum redundancy payment, to relocate during a period of time in which Tesco was reorganising its distribution centres.

Tesco confirmed that employees would receive the Retained Pay for as long as they were employed in their current role, that the Retained Pay could not be negotiated away and it would increase each year in line with any general pay rise.  In a joint statement published by Tesco and USDAW Retained Pay was described as "guaranteed for life". In a subsequent collective agreement Retained Pay was referred to as a "permanent feature" of an individual's contractual entitlement, and could only be changed through mutual consent, or on promotion to a new role.

In January 2021 Tesco announced its intention to remove Retained Pay and threatened to dismiss the employees and then re-hire them on new terms excluding the Retained Pay.

Decision

USDAW successfully applied to the High Court for:

• a declaration that affected employees' contracts were subject to an implied term preventing Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the employee's right to Retained Pay
• an injunction preventing Tesco from terminating the relevant employment contracts.

The High Court found that the express term in the employees' contracts to Retained Pay should last for as long as the employees were engaged by Tesco in the same substantive role.  However, this created conflict between the permanent right to Retained Pay and the contractual right of Tesco to terminate an employee with notice for the purpose of removing that right.

In order to resolve this conflict, the High Court found that an implied term should be written into the contract that Tesco would not exercise the right to give notice to terminate the employment contracts, where the notice was given for the purpose of removing the right to Retained Pay. This meant Tesco could not rely on fire and rehire in order to remove the express right of Retained Pay. The High Court did make clear that Tesco could still terminate the contract of employment for good cause, for example where the individual had committed an act of gross misconduct.

Why the case matters

This is a significant decision in relation to the tricky area of fire and rehire and re-enforces the risks involved for employers who pursue this avenue in an attempt to implement contractual changes. The High Court did accept the facts of the case were "extreme" and acknowledged that Tesco could have either limited the benefit in time or while employees were on a particularly contract it had not done so. 

Employers should take care to review all contractual benefits that are offered to employees to determine whether there is a risk that any benefit could be interpreted as being permanent. In the context of collective bargaining employers should also anticipate that this decision will be relied on by Trade Unions to argue that benefits contained in a contract are permanent and cannot be removed.  

The High Court's decision to halt Tesco shows that the practice of fire and rehire is still considered to be controversial. Given the media and political attention this issue has attracted, including an unsuccessful attempt to legislate for greater worker protection last year and ACAS issuing specific guidance to employers, employers should be mindful of the risk of media and public scrutiny in addition to employment law considerations before pursuing fire and rehire.