The High Court prevents Tesco from ‘firing and rehiring’ employees in the case of USDAW and others versus Tesco Stores Ltd.

In the case of the Union of Shop, Distributive and Allied Workers (USDAW) and others versus Tesco Stores Ltd, the High Court has granted an injunction that prevented Tesco from terminating the affected employees’ contracts of employment and offering re-engagement on new terms so as to remove a previous contractual entitlement to ‘Retained Pay’, the controversial practice known as ‘firing and rehiring’.

The Background

Tesco had been restructuring its distribution centres between 2007 and 2009. As part of this, there had been collective bargaining negotiations between USDAW and Tesco. To ensure that its distribution centre network would continue to operate effectively throughout this period, where staff could not be compelled to relocate to a new distribution centre, Tesco sought to make sure that they would not lose all of their existing employees due to redundancy. An entitlement to Retained Pay was negotiated as a retention incentive for those who would relocate, this being an alternative to a lump sum redundancy payment. The employees’ existing package was given a monetary value and the difference between that value and the value of the new (and less advantageous) terms and conditions available to newly appointed staff at the new distribution centre was protected. Each of the individual Claimants had relocated rather than accepting a redundancy payment.

In communications from Tesco to its employees, Retained Pay had been stated as “protection for life” and it had been said that they would benefit “for as long as you are employed by Tesco in your current role”. Furthermore, an express term incorporated into the contracts of employment for the affected employees stated that Retained Pay would be a ‘permanent feature of an individual’s contractual eligibility” and could only be changed through “mutual consent”, “on promotion”, or in the case of an employee-requested “change to working patterns”. Tesco also stated that the Retained Pay would increase each year in line with any annual pay rise. The Retained Pay also affected the value of other benefits such as Shares and Pensions.

Proposed Removal of Retained Pay

On 18 January 2021, Tesco formally announced its intention to remove Retained Pay and notified employees that if they did not agree to the change voluntarily, they proposed to terminate the individual contract and offer re-engagement on different terms. They incentivised employees to accept the change, by offering an advance payment worth the equivalent of up to 18 months’ of enhanced pay to those who accepted and did so promptly. Employees were given until 13 February 2021 to accept voluntarily.

USDAW applied to the High Court for a declaration that the affected employees’ contracts were subject to an implied term preventing Tesco from firing and rehiring the affected employees for the purpose of removing or reducing their right to Retained Pay. USDAW also sought an injunction preventing Tesco from terminating the contracts of those affected employees.

The Judgment

The High Court granted the relief sought.

The High Court considered on the facts that a reasonable person, having all of the background knowledge that would have been available to the parties at the time the negotiations took place would consider that the intention of both parties was that the entitlement to Retained Pay would be permanent for as long as each affected employee was employed in the particular role. The High Court noted “There is no other way in which to make sense of the use of expressions such as ‘guaranteed/protection for life’, and, in particular, ‘for as long as you are employed by Tesco in your current role’”.

In the judgment, the High Court noted that the facts are “unusual” and “extreme”. The High Court held that it was appropriate to find that there was an implied contractual term that prevented Tesco from exercising its right to terminate on notice, solely for the purpose of removing or lessening the employee’s entitlement to Retained Pay, on the basis of business efficiency and/or obviousness. The High Court concluded that without such a term the individual employee’s entitlement to Retained Pay would not be permanent and the contract would lack coherence. The High Court noted that were the officious bystander to have been asked whether the term was so obvious it went without saying, they were satisfied that the answer would have been “Of course!”.

The Court concluded that it was just and equitable to make an order preventing Tesco from giving notice to terminate the contract of an affected employee contrary to the implied term, and from otherwise removing or lessening of Retained Pay. The Court emphasised that Tesco remained free to terminate an affected employee’s contract for good cause for example in a genuine redundancy situation or where the individual committed an act of gross misconduct, even though this would effectively bring the entitlement to Retained Pay to an end. However it was noted by the High Court that in such circumstances the genuineness of the reason offered for such termination would undoubtedly be scrutinised in any litigation which may follow.

Appeal

Whilst Tesco sought permission to appeal, this was refused on the basis that none of the proposed grounds for appeal had a real prospect of success.

Can I still fire and rehire my employees so as to change their terms?

Whilst a recent attempt to introduce new legislation in this area to enhance worker protections was blocked at the second reading of the Employment and Trade Union Rights (Dismissal and Reengagement) Bill in October 2021, the High Court Judgment in USDAW & others v Tesco Stores Limited provides a significant development in the practice of fire and rehire- specifically where a benefit has been construed as a permanent entitlement.

ACAS has published guidance for employers on making changes to employment contracts, including the practice of firing and rehiring, noting that this should be a “last resort” and is an “extreme step that has significant risks”.  The guidance can be found here If employment contract changes cannot be agreed: Making changes to employment contracts – employer responsibilities – Acas

Where can I find further advice and support?

What is clear is that the decision to fire and rehire is not one that should be taken lightly, and must be judged on a case by case basis taking into account all the facts. Should you require any assistance with changing terms and conditions for employees, please do not hesitate to contact the co-head partners of our employment department, Ewan Keen and Tamara Ludlow.