Court of Appeal reverses injunction preventing Tesco’s "firing and rehiring" plan

In 2007, Tesco planned an expansion and restructuring of its distribution network, which involved the closure of sites and reopening of others.

Keen not to lose experienced staff in the process, Tesco offered certain employees a contractual enhanced payment known as “Retained Pay” as a retention incentive. This entitlement was negotiated with USDAW (the trade union recognised by Tesco for collective bargaining purposes).

The Retained Pay was to remain a “permanent feature” of the relevant individual’s contract and was “guaranteed for life”, according to a joint statement issued by Tesco and USDAW.

Fast forward to more than a decade later, Tesco wanted to bring Retained Pay to an end.

In the absence of employees expressly agreeing to the exclusion of the Retained Pay clause from their contract, Tesco intended to terminate the contract and offer re-engagement on different terms.

However, USDAW successfully applied to the High Court for an injunction preventing Tesco from doing so. The High Court also granted a declaration that the affected contracts were subject to an implied term which prevented Tesco from exercising its contractual right to terminate for the purpose of removing an employee’s right to Retained Pay.

Overturning the decision of the High Court, the Court of Appeal held that there was nothing in the wording of the Retained Pay provisions preventing Tesco from giving notice to terminate the affected contracts.

The Court of Appeal found that the requirement of “obviousness” of the implied term was not satisfied. It could not be accepted from the word “permanent”, or the phrase “guaranteed for life”, that it was the intention of both parties that the contracts would continue for life, until normal retirement age, or until the closure of the site concerned.

The Court of Appeal held that the injunction, which would in effect prevent a private sector employer from dismissing an employee for an indefinite period was unjustified.

The Court of Appeal’s judgment is unlikely to bring finality to the matter, with USDAW having already indicated its intention to challenge the decision in the Supreme Court. Employers should, however, remain vigilant to the potential backlash associated with the practice of firing and rehiring to implement contractual change, both in a legal and reputational sense.

The intense scrutiny that this practice attracts was highlighted by the Government’s announcement earlier this year of its plans to introduce a Statutory Code of Practice to give legal force to expectations of employers seeking to change employees’ terms and conditions and to act as a deterrent to employers who use the threat of firing and rehiring as a negotiation tactic. There is currently no timeframe for when the Code of Practice will be published. In the meantime, employers should be mindful of the non-statutory advice published by ACAS, which suggests that employers should consult with their workforces in a genuine and meaningful way regarding any contractual changes and only use fire-and-rehire tactics as a last resort. 

This blog post also appeared on our sister blog site Compact Contract