Supreme Court prevents Tesco’s fire-and-rehire, but what does this mean for employers?

The Supreme Court recently upheld an injunction to prevent Tesco from using fire-and-rehire on employees who had the contractual benefit to enhanced pay, which was described as ‘permanent’.

The Supreme Court’s decision

Back in 2007, Tesco had planned to close down some of their existing distribution centres and open new ones. As part of this process Tesco wished to retain staff and offer staff who were willing to relocate a pay enhancement, referred to as “Retained Pay”. The terms of the Retained Pay were contained in a collective agreement between Tesco and USDAW (its recognised union) and was described as ‘permanent’ subject to specific circumstances.

Tesco planned to bring Retained Pay to an end in January 2021 and offered employees a lump sum payment in exchange for removing the Retained Pay clause. If employees did not agree to this, Tesco would terminate their employment and offer re-engagement on the same terms without the Retained Pay entitlement, this practice is often referred to as ‘fire-and-rehire’.

A group of employees brought a claim in the High Court and were granted an injunction preventing Tesco from terminating their contracts. Tesco successfully appealed the decision and the Court of Appeal held that the reference to Retained Pay being ‘permanent’ was guaranteed for the life of a particular contract of employment.

The USDAW appealed the decision to the Supreme Court, and on the 12 September 2024 the Supreme Court allowed the appeal and restored the High Court’s injunction. The Supreme Court held that the right to receive Retained Pay will continue for as long as employment in the same role continues, subject to the specific conditions, and that right is deprived of its value if there is nothing to prevent Tesco from terminating the employment to defeat it. The Supreme Court also noted in its judgement that where a contractual term is incorporated into an employment contract from a collective agreement, the parties intentions may be relevant to the terms contextual interpretation.

What does this mean for employers?

The facts and circumstances of the Tesco case are very specific; it is, therefore, unlikely to affect most fire-and-rehire cases. However, it serves as an important reminder to employers about how they express any contractual benefits to their employees. Employers need to carefully consider their employees’ terms and communicate them effectively so that it is clearly understood by all parties and still allows some flexibility. Employers should be aware of the risk of using ‘permanent’ or words to the same effect, and consider making terms conditional or imposing relevant cut-off dates.

The Labour Government has pledged to reform the law and provide employees with effective remedies against abusive fire-and-rehire tactics. The Employment Rights Bill, which the government has pledged to produce within 100 days of the general election, will provide clarity on the processes employers should use and the remedies available to employees.

If you would like advice on drafting employee’s contractual terms and ensuring appropriate communication with employee’s, please feel free to contact our employment team who will be happy to assist.