Fire and Re-Hire - High Court Grants Injunction to Prevent Tesco Removing Benefits it Had "Guaranteed for Life"
In a recent case the High Court intervened to prevent Tesco from terminating and re-engaging staff in order to remove benefits previously promised "for life".
Why Tesco Stores Resorted to the Fire and Re-Hire Approach
Between 2007 and 2009, Tesco went through a reorganisation of distribution centres, which involved closures and relocations. To avoid losing its existing warehouse operative employees through redundancy, Tesco negotiated arrangements for 'retained pay' as an alternative to making lump sum redundancy payments and as an incentive to staff to agree to relocate. The affected staff (later the claimants in this litigation) accepted the retained pay instead of redundancy payments amounting to between £6-£8,000 each).
The existing contractual reward package was given a monetary value, and the difference between that value and the value of the new terms and conditions was protected.
Tesco communicated to staff that their individual entitlements to retained pay would remain for as long as they were employed in their current role, could not be negotiated away, and would increase each year in line with any general pay rise. The term was incorporated into the contracts of the individual claimants in the case.
Tesco and the recognised trade union, USDAW, published a joint statement in 2007 which described retained pay as "guaranteed for life". It was further described in a 2010 collective agreement as a "permanent feature" of an individual's contractual entitlement, only subject to change through mutual consent or promotion to a new role. If an employee requested a change to working patterns, the basic entitlement to retained pay would remain, with only the premium payment element being adjusted.
In January 2021, Tesco announced its intention to remove retained pay, offering a lump sum payment of 18 months' retained pay in return for giving up the entitlement. If employees did not take the offer, they would be dismissed and offered new terms which excluded retained pay.
USDAW and Affected Staff Taking Legal Action
In the case of USDAW and others v Tesco Stores Ltd [2022], USDAW applied to the High Court seeking:
- a declaration that the contracts were subject to an implied term preventing Tesco from exercising its contractual right to terminate in order to remove the employee's right to retained pay
- an injunction to prevent Tesco from terminating the contracts.
The court considered the meaning of the term "permanent" in the specific context of the retained pay. Whereas the term might ordinarily be taken to mean the benefit would last as long as the contract was in place, in this case the considerable communication between the parties was taken into account. The clear understanding was that the retained pay would remain in place for as long as the employee was employed in the same substantive role and it was on this basis the employees had accepted the Retained Pay, and agreed to re-locate. Given the right to retained pay was a "permanent" right, there was a conflict with the right of Tesco to terminate the employees' contracts on notice in order to remove the right. The High Court further found the employees' contracts contained an implied term that Tesco would not exercise its right to terminate their contracts in order to remove the right to retained pay.
The court was careful to emphasise that Tesco was still able to terminate an employment contract for a good cause - for example, genuine redundancy, or gross misconduct - though the genuineness of the reason would be likely to be scrutinised in any resulting litigation.
The High Court also concluded it was just and convenient to grant an injunction to prevent Tesco from giving notice to terminate the affected employees. This was because termination and re-engagement would remove a significant proportion of the employees' remuneration and cause significant injury to their legal rights. In the court's view, damages would not be an adequate remedy, as the remedy would be limited to losses recoverable in any claim for unfair dismissal.
Key Takeaways from this Case
Despite the outcome in this case, employers seeking to change terms and conditions of employment generally remain entitled to terminate contracts on notice following a procedure, and to offer re-engagement on new terms. The reason Tesco was prevented from doing so in this case was due to the unequivocal language it had used when putting the retained pay in place.
Employers considering offering similar incentives to encourage staff to sign up to new terms should give careful thought as to how those incentives are positioned in order to ensure they cannot later be construed as granting permanent rights.