High Court Grants An Injunction Against Tesco To Prevent ‘Fire And Rehire’
Key Contact: Claire Knowles
Author: Conrad Hazlitt
Employers wishing to make detrimental changes to employees’ terms and conditions will often, in the absence of the affected employees agreeing to those changes, dismiss on notice and offer to re-engage on the detrimental terms. This controversial approach to achieving contested contractual changes, known as ‘fire and rehire’, has attracted a lot of political attention with many calling for legislative intervention (see our previous article on this subject here: Fire and Rehire – Keep Watching this Space).
On 3 February 2022 in the case of USDAW & others v Tesco Stores Limited , the High Court contributed to the evolving debate by granting an injunction that prevents Tesco from using the ‘fire and rehire’ process to implement changes to terms and conditions for some of its workforce.
Tesco recognises USDAW (a trade union) for collective bargaining purposes for staff at some of its distribution centres. Between 2007 – 2009, Tesco restructured its distribution networks resulting in several of its distribution centres closing and a number of new ones opening elsewhere. Tesco did not have the contractual power to require employees to re-locate to the new distribution centres, and so those employees who objected to the proposed relocations faced redundancy. Facing the prospect of making mass redundancies, Tesco recognised that losing every objecting employee would cause significant operational disruption and so, following collective bargaining, the affected employees were offered “Retained Pay” as an incentive to relocate. To summarise, Retained Pay was designed to ensure that the affected employees would be no worse off at their new centre in that it compensated them for the perceived difference in ‘value’ between working at their old distribution centre and working at their new one. An express entitlement to Retained Pay was incorporated into each affected employee’s terms of employment. Contemporaneous communications to the affected staff described the Retained Pay as “permanent,” “for life,”, “guaranteed” and staff were assured that it would “[remain] for as long as you are employed by Tesco in your current role”.
Fast-forward a few years and in early 2021, Tesco announced its intention to remove Retained Pay, on the basis that the relevant arrangements had supposedly “achieved what they were designed to achieve” and that it was “now the right time to phase those arrangements out”. Tesco referenced the fact that colleagues who joined since did not enjoy Retained Pay and that as a business it wished to simplify its payroll system. Affected employees were offered an advance payment equal to 18 months’ Retained Pay to agree to its removal. If agreement could not be reached, Tesco proposed to ‘fire and rehire’ the objecting employees on new terms (i.e. the existing arrangements minus Retained Pay). Affected staff were given 3 weeks to decide.
Some employees refused to agree to Tesco’s proposal and, with the help of their union, USDAW, they brought proceedings in the high court for:
- a declaration that affected employees’ employment contracts contained an implied term that Tesco would not terminate employment specifically to remove the right to Retained Pay; and
- an injunction preventing Tesco from withdrawing Retained Pay or ‘firing and rehiring’ for the purposes of removing the Retained Pay.
For context, Retained Pay represented between 32% and 39% of each of the Claimants’ total remuneration package, whilst each Claimant had also taken out a mortgage based upon an income inclusive of the Retained Pay.
The High Court found in favour of the Claimants and ordered both the declaration and injunction sought. The High Court denied Tesco permission to appeal. It remains to be seen whether Tesco will seek permission to appeal from the Court of Appeal.
The High Court commented that ordinarily, the word “permanent” within in a contract would mean ‘to confer an entitlement that was permanent for as long as the particular contract endured’. However, the High Court found that the mutual intention of the parties here was that the entitlement to Retained Pay would be permanent for as long as each affected employee was employed in their particular role. The High Court held that it was therefore necessary to imply into the relevant contracts a term such that Tesco’s right to terminate on notice could not be exercised for the purpose of removing or diminishing each affected employee’s right to Retained Pay.
It was also appropriate and just to grant an injunction to prevent Tesco from giving notice to terminate the contracts of employment of any affected employees, contrary to the implied term as declared.
This is an unusual case decided on a very particular set of facts, so employers shouldn’t see this as a fundamental upheaval of the ‘fire and rehire’ principles generally or the right for an employer to exercise a contractual power to give notice to terminate. Where an employer terminates for ‘improper reasons’ it risks facing a Tribunal claim for unfair dismissal but an injunction, like the one made in this case, remains unlikely.
That said, this case does represent a significant development at least where “permanent” employee benefits are concerned. Employers should consider how to communicate contractual changes and how to build in flexibility when offering any entitlement that could be construed as “permanent”.
If you would like support changing employee terms and conditions within your business, our Employment Team are on hand to assist.