Why the case matters

During an economic downturn, employers are always looking at ways to save costs whilst at the same time avoiding redundancies. One controversial way they might seek to do this would be to fire and rehire staff on less favourable terms. The practice has been described as 'unscrupulous' and came in for a lot of criticism during lockdown. There was much speculation that the Government would legislate to make the practice of fire and rehire unlawful but instead, the Government has committed to introducing a Code of Practice on firing and rehiring (still awaited) which will have financial implications for employers if they breach it.

Injunctive relief is rarely sought in employment disputes, outside the context of restrictive covenants, largely because the courts have recognised how difficult it is to order the continued performance of a contract which relies on good faith between the parties. In the case reported below, the court had initially intervened to prevent Tesco from firing warehouse staff and then  rehiring them on lesser terms, but then the Court of Appeal overturned this decision. This marks a return to the orthodox position.

Facts

During a negotiation with USDAW over a decade ago, Tesco agreed that in return for certain changes to terms and conditions, warehouse staff at Tesco would receive an enhanced rate of pay, known as 'Retained Pay'. This was set out in a collective agreement, being described as 'permanent', and became part of individuals' employment contracts.

Ten years later, Tesco decided it wanted to make changes and withdraw the Retained Pay. When Tesco indicated it proposed to issue notices of termination to employees if changes could not be agreed, then offer them new terms and conditions but without the Retained Pay element, USDAW successfully obtained an injunction which prevented Tesco from dismissing the staff. The High Court held that there was an implied term that notice would not be given so as to defeat the entitlement to Retained Pay. Tesco appealed against the decision of the High Court.

Decision

The Court of Appeal overturned the High Court's decision. It held that it had been wrong to find an implied term. In general, courts should be reluctant to find that an implied term can trump an express term (in this case, the right to dismiss). A reasonable person would not have concluded that it was obviously the case that the parties had intended for the contract to continue indefinitely by virtue of the Retained Pay having been described as permanent. Further, injunctions should not as a matter of principle be granted unless there is clarity about what the party on the receiving end of it can and cannot do, which would not have been the case here.  

Why we should care

It is not surprising that the Court of Appeal restored the orthodox position. By and large employers are free to dismiss employees as part of a reorganisation, albeit that a remedy may lie in wrongful and unfair dismissal if they do so. The case confirms that an implied term will not easily be made out, especially where to do so would usurp or conflict with an express term. A dismissal might seem unethical but this does not mean the courts will step in to prevent it. It remains to be seen what the Code of practice on Fire and Rehire will say and how it may limit the power to dismiss in situations like this.