A stop to “Fire and Rehire” - Tesco Stores Ltd v USDAW [2024] UKSC 28
In September 2024, the Supreme Court delivered its judgment in Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and Others [2024] UKSC 28, a case concerning the controversial practice of "fire and rehire." The Supreme Court unanimously allowed USDAW’s appeal, holding that the employment contracts contained a term implied by fact with the effect that the employer’s right to terminate could not be exercised for the purpose of depriving the employees of their right to retained pay. It also restored the injunction granted by the High Court.
Background to the Appeal
The main issue of this appeal is whether Tesco can terminate its employees for the sole and specific purpose of depriving them of retained pay, a financial entitlement which was agreed to be permanent.
In 2007, Tesco went through a restructure with its distribution centre. This involved closing some sites, opening news ones and expanding others. To incentivise staff to relocate, Tesco and its recognised trade union, USDAW reached a collective agreement. In essence, Tesco’s communications with its staff are that the Retained Pay ‘will remained as long as you are employed by Tesco in your current role’ and was ‘guaranteed for life”.
Despite this reassurance, Tesco wished to bring ‘retained pay’ to an end in 2021. Tesco told its staff that the enhancement would be removed in return for a lump sum calculated to be 18 months’ worth of the retained pay. Staff were also told that agree to this, face dismissal then reoffered on the same terms, less protection of retained pay. USDAW brought a claim against Tesco on behalf of the affected staff, seeking declaration as to the true meaning of retained pay and an injunction restricting Tesco from terminating their employment to remove the retained pay term.
Supreme Court Decision
The Court begins by interpreting the express retained pay term. It was argued by Tesco that the retained pay term means that the entitlement to RP would be “permanent” for the duration of the contract, though it was subject to Tesco’s ““express and unqualified” right to terminate those contracts.
In response to this argument, the Supreme Court held that limiting the express promise that the retained pay clause would remain “a permanent feature of an individual’s contractual eligibility” unless Tesco terminated the contract, was to fail to give “permanent” its ordinary and natural meaning. If the Supreme Court were to allow this argument to succeed, therefore, it would deprive the promise made by Tesco of its value. In doing so, the Supreme Court held that the correct interpretation of the RP term is that the right to receive RP will continue for as long as employment in the same role continues, subject only to the qualifications within the RP term.
Takeaway Points
However special the circumstances of this case is, it offers a valuable lesson for employers when it comes to inducements offered to employees in return for agreement to significant changes to their terms and conditions. Employers must carefully balance providing enough incentive to gain consent while also preserving the flexibility to adjust any newly agreed terms in the future."
