Peninsula Team, Peninsula Team
(Last updated )
Peninsula Team, Peninsula Team
(Last updated )
On 12 September 2024, the Supreme Court handed down an important decision relating to “fire and re-hire”, or dismissal and re-engagement. The case of USDAW v Tesco Stores Ltd could potentially have significant implications for employers looking to undertake this process.
“Fire and re-hire” has always been contentious and it has come under intense scrutiny over the last few years. From a (failed) parliamentary debate to ban it, to a new Code of Practice for employers contemplating it and now likely further changes on the way by the Government, it’s been the subject of much legal and ethical wrangling. The Tesco case has now added more into this mix.
This case comes from outside of the employment tribunal system and was dealt with by the High Court, Court of Appeal and Supreme Court. This was due to the nature of the relief sought (an injunction to prevent the employer from terminating the employment of the affected employees). Nevertheless, it’s highly relevant to employers considering changing agreed terms and conditions.
Some time ago, Tesco underwent a restructure. Rather than lose experienced staff to redundancy, several employees were offered the chance to move to a new site with “retained pay”, whereby the difference between the value of their current contractual pay and the proposed contractual pay at the new site would be protected. This was agreed through a process of collective bargaining with the Union of Shop, Distributive and Allied Workers (USDAW).
At the time, various documents provided to staff by Tesco referred to the retained pay as “guaranteed for life” and “permanent” and a collective agreement which set out the circumstances in which the pay would be lost. None of these referred to a business decision by Tesco to remove the clause as a reason for the loss of the retained pay.
Despite these reassurances, Tesco later announced it would begin a process to remove the retained pay. In exchange, a lump sum equivalent to 18 months of the retained pay was offered. Employees had two choices, agree or be dismissed and re-engaged on a contract without retained pay.
In response, USDAW brought a case before the High Court on behalf of the affected employees, arguing they would not have agreed to the relocation originally had they known this could happen further down the line. It asked for an injunction preventing Tesco from taking the proposed action.
In the High Court, relying on the use of “permanent” and “guaranteed” in documents from the time, it was held that a term should be implied into the affected employees’ contracts that Tesco would not terminate their employment for the purposes of removing the term. Otherwise, the court argued, this would negatively impact the employees’ legal rights and this was therefore the “just and convenient” outcome.
As a result, the injunction was put in place. The Court of Appeal overturned this decision on the basis it placed upon Tesco the obligation not only to maintain the retained pay, but also the employment of those benefitting from it and that was an unworkable outcome. The court could find no evidence that there was a mutual intention to create employment for life (save for site closure or retirement) for those in receipt of retained pay, nor that the use of the word “permanent” was an indication of a limit on the circumstances in which the contract could be terminated.
Instead, the court held that the express terms of the contracts need to be read with their “natural and ordinary” meaning and the contracts notice clause could be used in the normal way to terminate. Any implied term that meant otherwise was not clear enough to have contractual force; terms can only be implied where they are blatantly obvious. Moreover, even if Tesco did not have the right to “fire and re-hire”, an injunction was not an appropriate mechanism for preventing that, as it has the effect of restraining a private sector employer from dismissing employees for an indefinite period. Injunctions, the court said, should only be issued where it is clear and beyond argument what the defendant can and cannot do.
The Supreme Court has now reinstated the injunction, confirming the reasoning of the High Court in relation to an implied term not to terminate the contract in order to remove the retained pay clause. This however did not, the court was clear to point out, prevent Tesco from dismissing the affected employees for other, unrelated reasons.
So, much like Tesco’s bag for life, the retained pay term for these employees is also for life.
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