Court of Appeal overturns High Court decision on Tesco ‘fire and rehire’
The Court of Appeal has allowed an appeal from Tesco against the previous decision of the High Court which granted an injunction preventing it from ‘firing and rehiring’ employees in order to force a change to terms and conditions of employment.
Between 2007 and 2009 Tesco reorganised its distribution centres. This involved some closures and the relocation of centres. Tesco agreed arrangements with USDAW for ‘Retained Pay’. This became a contractual entitlement for employees and was introduced to ensure that Tesco would not lose all its employee’s through redundancy. The Retained Pay clause was introduced as an alternative to a lump sum redundancy payment and was used as an incentive for staff to relocate.
In 2010 it was made clear in a collective agreement that Retained Pay would be a ‘permanent feature’ of employee’s contractual terms and would only be changed with consent from both parties, if a promotion of the individual occurred or if the employees requested a change to working patterns.
Proposed changes to terms
Tesco announced in January 2021 that they would be removing Retained Pay for employees. Tesco offered a lump sum payment equivalent to eighteen months’ Retained Pay if the employees gave up their ongoing entitlement and stated that if this was not opted for, employees would be dismissed and offered new terms without Retained Pay present.
USDAW applied to the High Court for a declaration that employee’s contracts were subject to an implied term which prevented Tesco from carrying out its proposed action. This included an application for an injunction which would prevent Tesco from terminating the affected employee’s contracts – effectively seeking to stop “fire and re-hire” practices in this instance.
High Court decision
The High Court granted the injunction. It held that the word ‘permanent’ in the contractual entitlement to Retained Pay meant for ‘as long as the relevant employee is employed by Tesco in the same substantive role’. Therefore, the Court decided that there was a conflict with the right to Retained Pay and the right to terminate on notice.
The High Court implied a term into the contract as it felt it was necessary to do so. Without doing so, the Court stated that the individual employees’ entitlement to Retained Pay would not be permanent. The High Court also held that it was just and convenient given the facts to impose an injunction restraining Tesco from giving notice to the employee to terminate the employee’s contract which would then cause the right to Retained Pay to end. Tesco appealed to the Court of Appeal.
Court of Appeal decision
The appeal was allowed. The Court stated that the High Court had erred in its finding with regard to the meaning of the ‘permanent’ contractual entitlement. The Court held that USDAW’s case was not clear as to what exactly both parties meant by ‘permanent’. The Court held that the express terms of the contract should be interpreted with their natural and ordinary meaning. This meant that Tesco would have the right to give notice in the ordinary way. They held that any entitlement to Retained Pay would only last as long as that particular contract remains in place. The Court held that any implied term which USDAW tried to rely on was not clear.
The Court held further that this case was not one in which granting an injunction would be justified. The Court held that an injunction cannot be granted unless it is plainly clear what a defendant can or cannot do which was not the case for the injunction provided by the High Court.
- This decision by the Court of Appeal stands in line with previous case decisions of a similar nature.
- Employers should still exercise caution when negotiating changes to contractual terms, particularly if an enhanced pay package is being removed in the process of the changes.
- Any option to dismiss and re-engage on new terms should be one of last resort in particular after this high profile case which underlines an employees ability to object to fire and rehire principles.
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