The UK Supreme Court on fire and rehire

We recently reported on the hangover of fire and rehire.

The Government has pledged to end the practice of employers being able to dismiss and re-engage employees on new terms of employment. In the meantime, the UK Supreme Court (UKSC) recently restored an injunction to prevent Tesco from withdrawing a contractually agreed benefit through fire and rehire.

Background

In 2007, Tesco reorganised its distribution centres. Several sites were to be closed, which led to a redundancy situation.

Tesco wanted to retain experienced employees and incentivised these staff to relocate. It negotiated with the Union of Shop, Distributive and Allied Workers (USDAW) and agreed to pay an enhancement of ‘Retained Pay’. This was intended to be a permanent feature of an individual’s contract of employment and could only be changed through mutual consent or promotion.

In 2021, Tesco announced its intention to remove the Retained Pay, and affected employees were offered an advance payment in return for their agreement. Staff were told that if they did not agree, they would be dismissed and re-engaged on the same terms but without the Retained Pay.

High Court

The affected employees (the Claimants) issued High Court proceedings seeking an injunction to restrain Tesco from terminating their employment contracts.

In a ground-breaking case, the High Court granted an injunction preventing Tesco from using fire and rehire to withdraw the Retained Pay. The Claimants’ employment contracts had an implied term that Tesco could not terminate to remove the Retained Pay.

Court of Appeal

Tesco appealed to the Court of Appeal.

Allowing the appeal, it was held that the entitlement to Retained Pay would only last as long as the particular employment contract. Tesco had the right to give notice in the ordinary way. It rejected any mutual intention of the parties to limit the circumstances in which Tesco could bring the contracts to an end.

UKSC

The Claimants appealed to the UKSC which restored the High Court injunction.

It was held that the ‘permanent’ Retained Pay term in their employment contracts meant that the Claimants were entitled to receive the benefit for as long as their employment in the same role continued. Tesco’s right to dismiss could not be exercised to deprive employees of the right to Retained Pay.

Comment

The circumstances of this case are specific. It is rare for an injunction to be granted over fire and rehire.  That said, the takeaway for employers is the importance of careful negotiation and not agreeing to the inclusion of permanent benefits or any limitation on the right to terminate employment contracts to bring about change.

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