High Court Injunction Restricts Tesco’s Ability to ‘Fire and Re-Hire’
The tactic of ‘firing and re-hiring’ employees as a means of changing terms and conditions of employment has received a lot of attention over the last year or so. Last year, the Government asked ACAS to investigate the use of these tactics, which culminated in the publication of further guidance from ACAS, in which it stated that firing and re-hiring is an extreme step that can damage staff morale, trust, productivity and working relations. In October 2021, the Government blocked a Private Members’ Bill which intended to impact fire and re-hire practices and on 22nd February 2022, the Department for Business, Energy and Industrial Strategy again suggested that there was no intention to legislate against firing and re-hiring.
Irrespective of the political debate, firing and re-hiring remains a controversial industrial relations tactic. This was perhaps best exemplified in the recent interesting case of USDAW and others v Tesco Stores Ltd, in which the High Court issued an injunction against Tesco to prevent it from firing and re-hiring a number of Tesco employees in order to remove their entitlement to a contractual enhanced payment.
The Case
Between 2007 and 2009, Tesco underwent a restructuring programme in relation to its distribution centres, which involved some centres being closed and some relocations. Tesco wanted to ensure that it would not lose all of its existing employees through redundancy. As such, Tesco negotiated with USDAW (the trade union recognised by Tesco for collective bargaining purposes) and agreed an
enhanced contractual payment package that amounted to a form of pay protection for those employees who agreed to relocate. Tesco agreed that these employees would be entitled to retain the difference in the value between their existing package and the value of the new terms and conditions which would otherwise apply at the new sites, which was called “Retained Pay”.
Documents published at the time by Tesco described the Retained Pay as “guaranteed for life”. The collective agreement between USDAW and Tesco in 2010 said that Retained Pay would be a “permanent feature” of an individual’s contractual entitlement which could only be changed through mutual consent or if the individual employee was promoted to a new role.
In January 2021, Tesco announced its intention to remove Retained Pay. It offered the affected employees a lump sum payment of 18 months’ Retained Pay in advance, in return for them giving up the entitlement. The affected employees were told that if they did not accept the offer, Tesco would terminate their contracts and re-hire them under a new contract of employment without the Retained Pay provision.
As such, USDAW (acting on behalf of the affected employees) sought an injunction from the High Court to prevent Tesco from terminating the employment contracts.
It was accepted that the reference in the collective bargaining agreement to Retained Pay being a “permanent feature” was an express term of the affected employees’ individual employment contracts.
Therefore, the argument before the High Court involved Tesco’s and USDAW’s different interpretations of what was meant by the word “permanent”. The High Court considered that the word “permanent” might simply mean “permanent for as long as the particular contract endures” (which was Tesco’s argument), which would therefore not conflict with an employer’s right to terminate that particular contract, by means of firing and re-hiring.
However, the High Court concluded that the correct interpretation of the meaning of the word “permanent” was “for as long as the relevant employee is employed by Tesco in the same substantive role” (which was USDAW’s argument). In coming to this conclusion, the High Court considered the context and words used by the parties during the negotiations and the formation of the collective agreement. It decided that the use of phrases such as “guaranteed for life”, and “for as long as you are employed by Tesco in your current role” demonstrated an intention to preserve the higher pay by way of the Retained Pay
Once the High Court had determined the correct interpretation of the word “permanent”, it then had to decide how to resolve the conflicting contractual terms, i.e., the employees’ permanent contractual entitlement to Retained Pay and Tesco’s contractual right to terminate on notice for the purpose of removing that right.
In order to resolve this conflict, USDAW argued that the affected employees’ employment contracts were subject to an implied term that Tesco would not exercise the right it would otherwise have; namely, to give notice to terminate those contracts to remove the right to Retained Pay.
Ultimately, the High Court agreed with USDAW’s argument that a term should be implied into the contract that Tesco would not give notice to terminate a contract to remove the right to Retained Pay. Without this implied term, the High Court was of the view that the affected employees’ entitlement to Retained Pay would not be “permanent” and therefore the employment contracts would “lack practical coherence”.
The High Court went on to say that Tesco would obviously be entitled to terminate an affected employee’s contract for “good cause” (for example, in a redundancy situation or where the employee had committed gross misconduct), even though the effect of doing that would end the entitlement to Retained Pay.
In light of the High Court’s findings, it granted the relief sought by the claimants. Firstly, it gave a declaration setting out the express contractual term relating to Retained Pay and confirmed that the term was subject to an implied term that the right to terminate the contract cannot be exercised for the purpose of removing the right of the employee to receive Retained Pay. Secondly, it restrained Tesco from terminating the affected employees’ contracts for the purpose of removing the right to receive Retained Pay.
Comment
The High Court commented that the particular facts, context, and the words used in the formulation of the collective agreement were quite extreme in this case. Therefore, it will still be very rare for a court to impose an injunction to prevent an employer from exercising a contractual right to ‘fire and re-hire’.
Nevertheless, this case illustrates the importance of both using correct terminology when negotiating and agreeing contractual changes at the outset, as well as the importance of treading carefully when contemplating seeking to change employment contracts using the ’fire and re-hire’ tactic, especially where the new terms the employer is seeking to impose go against the spirit of previously agreed intentions and arrangements for the future.
