February 7, 2022

Tesco prevented by the High Court to fire and rehire staff

Fired employee

Last week, the High Court delivered a significant judgment, in which it granted an injunction to prevent Tesco from embarking upon a fire and rehire exercise.

Background

In 2007, Tesco restructured several of its distribution centres. In order to retain as many employees as possible in those distribution centres, the union USDAW negotiated on behalf of its members for the inclusion of “Retained Pay”. Retained Pay was essentially a regular and additional financial payment in the employee’s wages. The purpose of Retained Pay was to encourage members of staff to relocate on a permanent basis.

However, the arrangements for Retained Pay were proving to be too expensive for Tesco. As a result, despite Retained Pay being in the Contracts of Employment for several employees for over 10 years, Tesco announced its intention at the start of 2021 to remove Retained Pay.

Tesco commenced a consultation process, during which it provided information about its rationale, the legalities and overall process. Details were also provided about a voluntary lump sum payment, namely 18 months of Retained Pay, to act as an incentive to encourage members of staff to move onto new Contracts of Employment which did not include Retained Pay.

Unsurprisingly, a number of Tesco employees refused to accept the changes. As a result, several employees were faced with dismissal. Tesco did state that it would offer the employees new terms and conditions of employment by way of re-engagement, albeit that the new Contracts did not include an entitlement to Retained Pay.

Many employers find themselves in a similar situation, particularly during contract negotiations. Provided that certain conditions are satisfied, businesses can sometimes fairly terminate someone’s employment, as well as avoiding the need to pay redundancy.

Decision

However, this case, which reached the High Court last week, has called into question whether employers will be able to fire and rehire in the future.

The leading judgment, highlighted a key clause in the Contract of Employment, namely that Retained Pay would remain a “permanent” feature of their employment. It was held that the word permanent did not necessarily mean “forever” but should remain enforceable for as long as each affected employee was employed in their particular role.

In this case which was noted to be “unusual and extreme”, it was held that the right to terminate an employee’s Contract of Employment could not be exercised for the purpose of “removing or diminishing the right of that employee to Retained Pay”.

The High Court’s judgment set out an express Retained Pay clause, which they considered had been implied into the employee’s Contract of Employment. The High Court also went further and restrained Tesco from terminating the employment of the affected employees.

Implications

This is a significant victory for USDAW as it is extremely rare for a court to imply terms and conditions into a Contract of Employment. Moreover, it is quite unusual for a court to provide an injunction in employment law for the benefit of employees. It shows that the courts are prepared to intervene when a business is proposing to fire and rehire, especially if the new contracts contain unfavourable terms and conditions.

Although employers should note that the facts of this case are somewhat unusual, especially with the unique provision of Retained Pay, it should act as a warning for many organisations. Businesses are frequently engaged in negotiations surrounding pay and benefits, which often result in unique and tailored packages for its members of staff, quite often without any conditions or time-limits.

Going forward, employers should act with caution if they are ever proposing to remove a contractual term, especially if that contractual term is unique or unusual in any way. In an age where many businesses are reassessing their profit margins and efficiency savings, contractual negotiations are likely to become even more common place. However, this case raises the possibility that forcing through a fire and rehire exercise may no longer be possible.

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