In Tesco v USDAW and others, the Supreme Court (SC) held that the Court of Appeal was wrong to overturn the High Court’s decision to impose a permanent injunction against Tesco to prevent it from dismissing and re-engaging (or ‘firing and rehiring’) a group of staff. In this insight, we look at the reasons for that decision and key takeaways.

Background

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.

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 employees brought a successful claim in the High Court which 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.

The Court of Appeal allowed Tesco’s appeal and overturned the High Court’s decision (for a discussion of the implications of the CA’s decision, see our August 2022 insight - High Court injunction preventing employees being ‘fired and rehired’ overturned by Court of Appeal). USDAW appealed to the Supreme Court.

The Supreme Court’s decision

The Supreme Court upheld the appeal and reinstated the order made by the High Court (to imply a term into the contracts of the affected employees preventing Tesco from dismissing them in order to remove retained pay and grant a permanent injunction against Tesco to prevent it from acting contrary to the implied term) on the basis that:

• “The word “permanent” in the retained pay term conveys that the right to retained pay is not time-limited in any way and would continue to be paid to employees for as long as their employment in the same role continues.” Any other interpretation “does not stand up to scrutiny” as “it gives no substance to the express promise that retained pay “will remain a permanent feature of an individual’s contractual eligibility” (where it is accepted that eligibility means entitlement).”
• It was appropriate and necessary to imply a term into the contract to qualify Tesco’s right to dismiss, as “without it, the employees’ right to permanent retained pay would be capable of being immediately defeated.”
• The injunction, in the terms ordered by the High Court, was unusual and exceptional in an employment case. However, it was justified and appropriate in this particular case, not least because “damages would be an inadequate remedy” for the employees should Tesco go on to breach the implied term.

What to take away

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.

The employees succeeded in their challenge, but we note that the Supreme Court described this as an “unusual case”. It was unusual because, on the facts of the case, the employees had a permanent entitlement to retained pay, therefore, Tesco

1. does not have the usual unfettered common law right to terminate their contracts on notice, and
2. is essentially obliged to continue to employ them on retained pay.

Consequently, unions will still face the same difficulties persuading the High Court to grant declaratory and injunctive relief to prevent an employer imposing changes to terms and conditions via ‘fire and rehire’; the bar for a successful application is high and each case will turn on their own facts.

However, looking ahead, the Government plans to make legislative changes to restrict the use of ‘fire and rehire’ practices by employers to situations where it is necessary for a business to remain viable or where there is genuinely no other alternative. We now await the publication of the Employment Rights Bill, which the Government has pledged to lay before Parliament by 12 October 2024, for clarity on when these changes will be implemented and for more detail on the practicalities.

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 aim. Capsticks has significant experience 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.