In USDAW & others v Tesco Stores Ltd (EWHC) the High Court granted an injunction to stop Tesco withdrawing a contractual benefit by means of dismissal and re-engagement of certain employees.

BACKGROUND

In the 1990s, Tesco undertook an expansion programme of its distribution network involving the relocation to new premises and the closure of some existing distribution centres with resulting redundancies.  So that it did not lose all its existing and experienced staff, it negotiated and agreed that affected employees would be entitled to "Retained Pay" as an alternative to redundancy and as an incentive to relocate.  It made clear that the entitlement to Retained Pay would remain as long as the individuals were employed in their current role, it could not be negotiated away and would increase each year in line with any general pay rise.  The benefit was said to be "guaranteed for life" and could only be changed by mutual consent or on promotion to a new role.

In 2021, Tesco announced its intention to remove Retained Pay.  It offered a lump sum payment of 18 months' Retained Pay in advance in return for giving up the entitlement, failing which employees would be dismissed and offered new terms excluding the Retained Pay.

DECISION

The claimants were granted an injunction preventing Tesco from terminating the affected contracts.  The Court held that there had been a clear intention to preserve the higher pay enjoyed by the affected employees, without which the relocation would have been unpalatable.  It acknowledged the unusual facts of the case but concluded that a term should be implied into the affected contracts that Tesco's right to terminate those contracts on notice could not be exercised for the purpose of removing or diminishing the affected employees' right to Retained Pay.  

It did emphasise that Tesco remains free to terminate an affected employee's employment for good cause (e.g. genuine redundancy or gross misconduct), even though the practical effect of doing so would be to bring an end to the entitlement to Retained Pay.  It also set out the express contractual term relating to Retained Pay for incorporation into their contracts and subject to the implied term. 

IMPLICATIONS

While it is possible to dismissal and re-engage employees on new terms it remains controversial and there have been repeated calls to legislate to prevent the practice.  At the end of February, the Government reconfirmed that it has no plans to legislate against fire and rehire tactics but this case does represent a new development on the issue.  

It is worth remembering that this is an unusual case relating to "extreme" facts and it is unlikely that similar facts would arise in other cases where dismissal and re-engagement are being contemplated.  It does, however, show the importance of ensuring that contractual benefits do not become "permanent".  Employers will certainly want to give careful consideration on how to communicate contractual changes and how to ensure flexibility when offering any entitlement to make sure it cannot be construed as permanent, for example, setting a long-stop date for the entitlement or making it conditional.  In terms of negotiation, it will strengthen the hand of employees and unions if the employer seeks to withdraw a "permanent" benefit and the employer will need to ensure that it can distinguish its own position from the facts in this case.