For those of you who watched Matthew Cole and Vanessa Bell’s informative webinar on 3rd March 2022, you may recall the case of Tesco Stores Ltd v USDAW and ors, in which the High Court granted the Union of Shop, Distributive and Allied Workers (USDAW) an injunction restraining Tesco from dismissing staff from their distribution centres and offering them re-engagement on less favourable terms.  Such a practice is known (more colloquially and in rather more headline-grabbing terms) as the “fire and re-hire” practice.

The Court of Appeal has now overturned this injunction, leaving Tesco free (for now) to terminate these employees’ contracts and offer them new, more detrimental terms and conditions of employment.

What is the practice of “firing and re-hiring”?

This occurs when an employer dismisses a worker - usually because the worker will not consent to changes to their contractual terms - but then immediately offers to re-employ them on a new contract that omits the offending term(s). 

There is no doubt that the practice is controversial. However, the commentary surrounding this case (and similar cases) would have many believe that these are decisions taken on a whim and without explanation.  

The P&O Ferries case aside, this is often very far from the truth. Dismissal and re-engagement is risky for employers. They face not only the risk of claims for unfair dismissal but (depending on the number of dismissals and quality of consultation) possible claims for protective awards as well. 

The reality is that many employers only use dismissal and re-engagement as a last resort. It tends to follow a pro-longed period during which the employer explains the business rationale for the proposed change, enters into consultation with those affected in order to try and agree to the change consensually and, when all else fails, gives notice to terminate the contracts and offers immediate re-engagement on the new terms. 

Background to Tesco Stores Ltd v USDAW

The background to the Tesco Stores Ltd v USDAW and ors case is fairly complex, so we will only briefly summarise the main points below. The full judgment from the High Court can be found here: The Highcourt judgement of Tesco Stores Ltd v USDAW

USDAW is recognised by Tesco for collective bargaining. In the late 90’s - early 2000s, Tesco embarked on a restructuring exercise to expand its distribution network. This involved re-locating some staff to a new purpose-built premises. In order to retain existing staff and incentivise them to re-locate, Tesco agreed with USDAW that staff pay would essentially be protected from the less favourable terms of employment which were going to be offered to new staff. The difference between the value of their existing package and the value of the new contracts was referred to as “Retained Pay”. Staff were reassured that Retained Pay would be “…a permanent fixture of their employment contracts” and this was written into the collective agreement.

When, some years later, Tesco sought to remove the right to Retained Pay, they were faced with significant resistance. USDAW argued that the right to Retained Pay was guaranteed for life. It applied for an injunction from the High Court, on behalf of 42 staff, to prevent Tesco from terminating their contracts. 

The High Court granted the injunction. It agreed with USDAW’s interpretation of the word “permanent” and, in particular, that it guaranteed the affected employees a contractual entitlement to Retained Pay for as long as they were employed by Tesco in the same role. 

The High Court, drawing parallels with other benefits such as PHI and the right to a statutory redundancy payment, held that, in view of the “obvious” intention between the parties, Tesco’s right to terminate the contracts should be subject to an implied term restricting it from terminating if doing so would deprive the employees of the right to Retained Pay. Tesco appealed to the Court of Appeal.

Court of Appeal

In a Judgment handed down on 15th July 2022, the Court of Appeal overturned the High Court’s injunction. It held that the wording “permanent” and “guaranteed for life” were not sufficiently clear to show a mutual intention between the parties that the contracts would continue for life, until retirement, or until the site was closed. Furthermore, it held that there was nothing in the wording which suggested that Tesco could not give notice of termination in the usual way; the term implied by the High Court was too unclear to suggest a contrary interpretation. Given the lack of clarity, therefore, the Court of Appeal held that the draconian step of granting an injunction was inappropriate in the circumstances, particularly when there was already a remedy for wrongful dismissal which the employees could pursue – i.e. financial damages.

What's next? 

This Judgment may well have returned the position back to the status quo, but it is unlikely that this will be the end of the matter. USDAW has already indicated that it will be challenging the decision in the Supreme Court, and so it will be some considerable time before we have any certainty. 

Nevertheless, it is important to note that this case is very fact-specific, and the circumstances are extreme. It is very rare for an employer to be so bold as to guarantee any benefits, either for life or on long-term basis. Most employers, therefore, are unlikely to face challenges of this type. 

Regardless of any future Supreme Court decision, however, it is evident that firing and re-hiring practices are, and will be, coming under increasing scrutiny. ACAS has recently produced guidance to encourage good workplace practices when negotiating changes to staff contracts, and even though the government’s attempt to introduce new legislation into this area has been blocked, it is clearly an area of law that is gaining political momentum. The “fire and re-hire” soundbite also now has unprecedented traction in the public consciousness. 

In the current economic climate, where organisations may need to take bold steps to protect their businesses, now more than ever, it is important to get things right. Our Employment Team has a wealth of experience guiding employers through organisational change and contractual variation processes. For further advice and assistance, please contact the team directly via Employmentexpert@prettys.co.uk.