In Tesco v USDAW and others, the Court of Appeal (CA) held that the High Court was wrong to impose a permanent injunction against Tesco to prevent it from dismissing and re-engaging a group of staff.

How did the CA arrive at its decision and what are the practical consequences for UK employers? Find out in this insight.

Retained pay

The Union of Shop, Distributive and Allied Workers (USDAW) is recognised by Tesco for collective bargaining. In 2007, Tesco undertook an expansion programme of its distribution network which involved relocating to new, purpose-built premises. Following negotiations, it was agreed that affected employees would be entitled to “retained pay” (as an alternative to a lump sum redundancy payment), an incentive to relocate and a form of pay protection.

Retained pay was described in various documents in terms such as “a permanent feature” that was “guaranteed for life”. It could “only be changed by mutual consent” or removed in limited circumstances.

The High Court injunction

In early 2021, Tesco wanted to buy out retained pay, so it offered a one-off payment equal to 18 months of retained pay. If the buy-out offer was not accepted within three weeks, Tesco intended to terminate individual contracts and offer re-engagement on new terms (i.e. the existing arrangements minus retained pay). A number of individuals refused and USDAW sought an injunction from the High Court to prevent the dismissal and re-engagement. For each of the individual claimants, retained pay represented between 32% and 39% of their total remuneration.

The High Court held that:

• a term should be implied into the contracts of the affected employees preventing Tesco from dismissing them in order to remove retained pay, and
• it was appropriate, just and convenient to grant a permanent injunction against Tesco to prevent it from acting contrary to the implied term.

Tesco decided to appeal.

The Court of Appeal’s decision

The Court of Appeal upheld the appeal on the basis that:

• the parties mutual intentions were not clear enough to have allowed the High Court to find that the word ‘permanent’ was intended by both parties to mean that the contracts would continue for life, or until normal retirement age, or until the closure of the site concerned
• it could also not accept that it was the mutual intention of the parties to limit the circumstances in which Tesco could give notice to end the contracts
• the express retained pay clauses in the contracts should therefore have been given their ‘natural and ordinary’ meaning by the High Court. This means that (1) an employee’s retained pay entitlement only exists whilst the contract does, and (2) Tesco still had the right to give notice to terminate the contract.

The Court also found that, even if the High Court had been entitled to interpret the relevant clauses in the way they did:

• Tesco had never given any indication that they would not exercise that right and so it could not ‘estopped’ (prevented) from doing so
• the injunction was not justified (noting that a private sector employer had never before been permanently prevented from dismissing an employee), and
• an injunction cannot be granted unless it is ‘clear beyond argument’ what a defendant can or cannot do (which could not be said of the injunction in this case).

What employers can take away from this case

If an organisation forces changes to terms and conditions through dismissal and re-engagement, there is a high risk of Employment Tribunal claims for unfair dismissal coming from individual employees.

While the impact of the High Court’s decision was limited to cases involving the removal of permanent benefits in any event, the Court of Appeal’s decision confirms an important fact. Even in permanent benefit cases, unions will have difficulty persuading the High Court to grant declaratory and injunctive relief to prevent an employer imposing changes to terms and conditions via ‘fire and rehire’.

However, this is not the last word on the matter as we understand that USDAW have indicated that they intend to appeal to the Supreme Court.

How Capsticks can help

Unfortunately, it is not always possible to reach agreement when seeking to change terms and conditions. However, that should always be the goal. Capsticks has significant experience of supporting employers before, during and after any organisational change process (including delivering training, supporting decision makers and HR involved in the management of the process and defending any legal challenges / claims that may arise).

For further information on how we might assist your organisation, please contact Paul McFarlane, Alistair Kernohan and Chloe Edwards.