Supreme Court blocks Tesco's fire and re-hire plans
In a landmark judgment, the Supreme Court has ruled that Tesco cannot use fire and rehire tactics to strip employees of their contractual right to permanent retained pay.
Background
In USDAW and others v Tesco Stores, the Supreme Court reinstated an injunction preventing Tesco from terminating and re-engaging employees to remove their entitlement to permanent retained pay (PRP). The right to PRP was introduced in 2007 when Tesco reorganised its distribution network and negotiated with staff to PRP as an alternative to redundancy, and as an incentive for staff to permanently relocate to work from another location. Employees were informed that the PRP would be a permanent feature of their contracts for as long as they remained in their roles. The PRP was to come to an end only in the event of an employee's promotion, or by mutual agreement between the employee and Tesco.
However, in 2021, Tesco sought to remove the PRP and offered lump sum payments to employees in return for giving up the PRP. Staff were told that if they resisted the change to their terms and conditions, they would be dismissed and offered re-engagement on new terms that excluded the PRP.
The claimants, represented by the shop workers' union (USDAW), successfully obtained an injunction from the High Court, arguing that Tesco could not terminate contracts solely to remove the PRP.
Tesco appealed successfully to the Court of Appeal, which overturned the injunction. In its decision, it found that the PRP was only guaranteed for the life of the existing contracts, which could be brought to an end on notice at any time of the employer's choosing. USDAW appealed to the Supreme Court.
Supreme Court restores injunction
The Supreme Court has now reinstated the injunction and has overturned the Court of Appeal's decision. It ruled that the PRP was a permanent contractual benefit, which Tesco could not eliminate by terminating and re-engaging employees. Central to the ruling was the interpretation of the term 'permanent'. The Court found that the word should be taken to mean permanent for as long as employees remained in the same role, as originally promised in 2007. Tesco had argued that although Retained Pay was a permanent feature of the contract, it was subject to the company’s unqualified right to terminate the contract on notice at any time. The Supreme Court rejected this argument, noting that this interpretation would undermine the express promise of permanence made to employees.
The Supreme Court ruled that damages would not be an adequate remedy in this case. Estimating the future employment prospects of the affected employees would have been speculative and resource-intensive. In addition there had been no breakdown of mutual confidence between Tesco and the employees. On this basis, the Court restored the injunction.
Learning points
This ruling highlights the need for employers to honour long-term contractual promises, especially those labelled as "permanent." The decision demonstrates that courts may imply terms into contracts to prevent employers from undermining key rights through tactics like fire and rehire. Employers should exercise caution when attempting to change employment terms, as the courts are willing to intervene where necessary to uphold contractual obligations.
The ruling also highlights the importance of clear contractual drafting. Tesco could have negotiated a longstop date or outlined scenarios in which the PRP could be terminated, but it failed to do so. This oversight contributed to the Court's decision to imply the necessary terms to protect the employees’ rights.