How Will the Case of Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and Others [2024 UKSC 28] Impact Fire and Rehire?
Author: Sam Evans
Key Contact: Chris Aldridge
Background
In 2007, Tesco introduced an enhanced pay scheme known as “Retained Pay” following a re-structure of its distribution centres. This re-organisation resulted in some sites closing and Retained Pay was intended to incentivise existing staff members to relocate. In a joint statement published by Tesco and USDAW (the recognised union), the enhancement was described as “guaranteed for life”. In internal communications, Tesco also emphasised that the entitlement to Retained Pay would remain for the duration of an employee’s employment in their existing role. A later collective agreement in 2010 stated that Retained Pay would be a “permanent feature” of an individual’s contractual entitlement and could only be changed through mutual consent or following promotion to a new role.
In January 2021, Tesco sought to end Retained Pay by offering employees a one-time advance payment equivalent to 18 months’ Retained Pay in exchange for removing this term from their contracts. If employees refused, Tesco planned to terminate their contracts and offer re-engagement on new terms, a practice commonly referred to as “fire and rehire”.
The Claimants then sought an injunction to prevent Tesco from removing their contractual entitlement to Retained Pay through fire and rehire.
Legal Issues
This case came before the Supreme Court following the Court of Appeal’s decision in 2022 to overturn an injunction granted by the High Court. Tesco argued before the Supreme Court that, whilst the affected employees were entitled to Retained Pay, this right was nonetheless subject to a notice provision which allowed Tesco the unrestricted right to terminate the employment contract, providing it served the requisite notice (save in instances of gross misconduct).
However, the Supreme Court rejected this argument and found it inconceivable that the parties would have intended for the right to Retained Pay to be subject to Tesco’s unilateral right to terminate employee’s contracts which would ultimately extinguish the right altogether. This was based on many of the pre-contractual documents explored above and led them to conclude that, at the time when Tesco introduced the right to Retained Pay, they had intended to induce the existing experienced employees at the affected distribution centres to relocate rather than accepting a redundancy package. In all likelihood they would not have done so without the enhanced Retained Pay.
Key takeaways for employers
Firstly, it is important to recognise that this case does not automatically mean the end of the practice of fire and rehire. The facts of this case were highly unusual and the Supreme Court ultimately took the view that it was not its function, when interpreting an agreement or implying a term, to release a party from the consequences of poor advice or short term judgment.
However, even though such permanent arrangements are atypical, the case does emphasise that employers should be cautious when negotiating and agreeing enhanced contractual arrangements. It would be prudent to consider a cut off point or long stop date when offering enhanced contractual arrangements rather than seeking on the right to serve contractual notice to terminate and re-engage (hire and re-hire).
Ultimately, the new government has promised to end the practice of fire and rehire in its Employment Rights Bill, due to be brought before Parliament at some point in October. At the time of writing, the practice is already subject to the recent Acas Code of Practice on dismissal and re-engagement. This document stresses that fire and rehire should be considered a last resort and so any employers should seek legal advice before trying to dismiss and re-engage an employee.