Tesco’s plans to fire and re-hire blocked by Supreme Court

The practice of dismissing and re-engaging employees on revised terms and conditions of employment, often referred to as “fire and re-hire’”, has been the subject of considerable debate and political scrutiny. This has been the case noticeably since the high-profile, mass-dismissal of hundreds of workers by P&O Ferries in 2023, which we reported on in detail earlier this year.

Now, fire and re-hire has found itself in the press again in relation to the Supreme Court’s recent landmark judgement in USDAW and others v Tesco Stores Ltd. The Supreme Court have restored the High Court’s decision to grant an injunction. This prevents Tesco from using ‘fire and rehire’ to remove a permanent contractual entitlement to permanent retained pay (“PRP”).

What happened?

In 2007, during a restructure of its distribution centre network, Tesco introduced PRP as an alternative to redundancy and as an incentive for staff to relocate and work from another location permanently.

Tesco recognised the shop workers’ union (“USDAW”) for collective bargaining purposes and, in 2010, entered into a collective agreement. It was decided PRP was a permanent contractual term that could only be changed through mutual agreement between the employee and Tesco or if an individual was promoted. Tesco made clear to their staff in related communications that retained pay was to remain in place for the duration of their employment.

However, in January 2021, Tesco sought to remove the contractual right to PRP and offered employees a lump sum of 18 months’ worth of PRP in exchange for them giving up their contractual entitlement. Those who did not agree to the offer would be dismissed and re-engaged on the revised terms, which excluded PRP.

The High Court and the Court of Appeal

The USDAW, representing the claimants, applied to the High Court and successfully obtained an injunction preventing Tesco from terminating their employment in order to remove PRP.

The High Court considered the meaning of the word “permanent” and found that both parties had intended for the entitlement to continue for the full duration of the employment. It was held that a term should be implied to prevent Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the right to retained pay. In addition, an injunction was granted to prevent Tesco from “firing and rehiring”.

Following the decision of the High Court, Tesco successfully appealed to the Court of Appeal, who did not agree with the High Court’s interpretation of “permanent”. It was held there was no evidence that Tesco intended for the contracts to continue for life. The Court of Appeal also rejected the High Court’s argument that damages would be an insufficient remedy on the basis that an employee’s remedy for a breach of contract is invariably financial. USDAW appealed to the Supreme Court.

The Supreme Court

The Supreme Court held that the word ‘permanent’ meant that the right to receive retained pay would continue for as long as the employee remained in the same role. In essence, therefore, the Supreme Court overturned the Court of Appeal’s decision and reinstated the injunction.

Despite the contract expressly allowing for Tesco to dismiss its workers on notice, the Supreme Court decided that an additional term should be implied into the contract, preventing Tesco from exercising their power to dismiss for the purpose of removing the right to PRP.

The court held that it was the mutual intention to preserve the retained pay because Tesco offered the benefit to retain experienced employees. It was therefore implausible that the mutual intention of the parties was for Tesco to retain a unilateral right allowing them to immediately dismiss employees for the purpose of removing the right.

Additionally, Tesco had every opportunity during the collective agreement process to impose a longstop date, and they did not. The Supreme Court decided it was necessary to imply a term which would stop Tesco exercising its right to terminate the employment contract for the purpose of depriving the employees of their right to retained pay.

The impact on schools

Across the sector, there has been an increase in union activity over recent years and we have seen many schools receive requests for union recognition. It is possible that some unions, emboldened by the Supreme Court decision, may seek to extend the circumstances in which injunctions are used to prevent employers dismissing and reengaging employees in similar circumstances.

It is, however, important to note that it is extremely rare for an injunction to be grated to prevent an employer from dismissing an employee and re-engaging them on revised terms. The Supreme Court acknowledged this case was based on “extreme” facts.

In any case the decision highlights the importance of clear drafting, and we recommend schools seek legal advice where they intend to make changes to contractual terms and conditions of employment.

Schools should be mindful to ensure any communications regarding contractual changes and wording used in collective agreements are clear and unambiguous. Where possible, Schools should avoid using language which could be interpreted as guaranteeing contractual entitlements on a permanent basis. We recommend obtaining independent legal advice to assist with this.