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Employment contracts

Tesco ‘fire and rehire’ proposals blocked by the High Court

Often “dismissal and re-engagement” is used as a tool by employers to force through change to terms and conditions when an employee does not agree to a variation and where consultation and negotiation has otherwise failed.

However this month the High Court stepped in to grant an injunction to prevent Tesco from ‘firing and rehiring’ employees which Tesco tried to do to force through a contractual change stating they were obliged to provide employees with enhanced pay. In USDAW and ors v Tesco Stores Ltd the Court unusually implied a contractual term which prevented Tesco from exercising its right to terminate employment for the purpose of removing the employee’s right to enhanced pay.

Background

Between 2007 and 2009 Tesco was reorganising 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 employees 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.

When it introduced the right, Tesco made it clear that the right for the individual would remain for as long as they were employed in their current role. It was clear that the right could not be negotiated away and would increase in line with any pay rise.

In 2010 it was made clear in a collective agreement that Retained Pay would be a ‘permanent feature’ of employees’ contractual terms and would only be changed with consent from both parties, if a promotion of the individual occurred or if the employee 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 employees’ 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 employees’ contracts.

High Court Decision

In making its decision, the Court looked at the use of the word ‘permanent’ with regard to the contractual entitlement to Retained Pay. It stated that permanent might simply mean ‘permanent for as long as the particular contract endures’ which would not conflict with the right to terminate a contract on notice. The High Court determined that this meaning would ignore the intentions of Tesco, USDAW and the employees when it was entered into.

The Court therefore determined that ‘permanent’ 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 Court determined that in this ‘extreme’ case, given the facts, it was necessary to imply a term into the contract. Without doing so, the Court stated that the individual employees’ entitlement to Retained Pay would not be permanent.

The Court went on to state that Tesco could still terminate employees’ contracts if they had good cause. This would then bring the contractual right to Retained Pay to an end.

With regard to the injunction sought, this was granted by the High Court as Tesco’s proposals would cause significant injury to the affected employees’ legal rights. It was just and convenient given the facts to impose an injunction restraining Tesco from giving notice to the employee to terminate the employees’ contract which would then cause the right to Retained Pay to end.

Comment

This case is interesting, overall we do not think it fetters the ability to dismiss and re-engage but as ever, each case turns on its fact. However it is rare that a term of this nature is implied into contracts of employment by a court but given the specific circumstances in this case it was deemed necessary to do so.

We take from this that employers should exercise caution when negotiating contractual changes with employees in which it would offer to dismiss and re-engage employees on less favourable terms, particularly if an enhanced pay package is being removed in the process. No doubt however that Union presence in this case and the collective agreement in place added force to the arguments being considered.

If you would like to learn more about how we can support your business, please contact a member of our Employment & HR team.

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