Tesco has lost a landmark case in the Supreme Court over the use of so-called “fire and rehire” tactics, in a move greeted by union bosses as a massive victory for workers’ contract rights.
The UK’s highest court ruled in favour of the trade union Usdaw and a group of members employed by Tesco as warehouse operators in a legal battle lawyers said had major consequences for the future of employment law.
The court found Tesco should not be allowed to terminate employees’ contracts and offer to rehire them on less favourable terms – a tactic that has come increasingly under the spotlight amid promises it will be banned by the new Labour government.
Usdaw took legal action against Tesco to strip some warehouse workers of their higher pay by ending their contracts and then offering to rehire them.
In 2022, Usdaw secured an injunction preventing Tesco from dismissing warehouse workers and offering them new contracts.
Tesco later overturned this decision on appeal, but the Supreme Court decision reverses that ruling, stating that Tesco cannot use contract terminations to deprive employees of their right to retained pay.
All five judges at the Supreme Court disagreed with the conclusions of the Court of Appeal.
The leading judgment from Lord Burrows and Lady Simler ruled the employees in question were employed under a contract with an express term providing for ‘retained pay’ on a permanent basis, which would subsist for as long as their employment in the same role continued.
“We agree with the submission on behalf of the claimants that it is necessary, applying the business efficacy test, to imply a term in the contracts to qualify Tesco’s right to dismiss on notice so that it cannot be exercised for the purpose of depriving the claimants of their right to permanent retained pay,” the judgment says.
The Supreme Court also concluded that the High Court had been right in February 2022 to grant an injunction to prevent Tesco from firing and rehiring the employees as damages would be an inadequate remedy.
Neil Todd, a partner in the trade union law group at Thompsons Solicitors, said: “This is a fantastic judgment for Usdaw and the members concerned. Those in receipt of retained pay were promised unequivocally that they would be afforded a permanent benefit under their employment contract if they agreed to remain with the business and support it when it needed them most.
“They were then threatened with ‘fire and rehire’ when Tesco considered that the benefit had served its purpose. This decision illustrates that a court will intervene to give effect to the parties’ intentions when entering into a contract. It also demonstrates that a right to an injunction is available regarding a breach of contract of employment when damages are not an adequate remedy, as was the case here.
“The injunction will prevent this important right from being stripped away. The litigation has been hard-fought, but we are delighted to achieve an outcome that we consider just in all circumstances.”
Paddy Lillis, Usdaw general secretary, added: “Usdaw has been determined to stand by its members in receipt of this valuable benefit that constituted a key component of their pay. We recognised that they had been afforded this payment because of their willingness to serve the business, and it was on that basis that we agreed with Tesco that it should be a permanent right.
“When we said permanent, we meant just that. We were therefore appalled when Tesco threatened these individuals with fire and rehire to remove this benefit. These sorts of tactics have no place in industrial relations, so we felt we had to act to protect those concerned. We were very disappointed with the outcome in the Court of Appeal but always felt we had to see this case through.
“We are therefore delighted to get this outcome, which is a win for the trade union movement as a whole.”
A Tesco spokesperson said: “We accept the Supreme Court’s judgment.
“Our colleagues in our distribution centres play a really critical role in helping us to serve our customers and we value all their hard work. Our objective in this has always been to ensure fairness across all our DC colleagues.
“Today’s judgment relates to a contractual dispute brought on behalf of a very small number of colleagues in our UK distribution network who receive a supplement to their pay. This supplement was offered many years ago as an incentive to retain certain colleagues and the vast majority of our distribution colleagues today do not receive this top up. In 2021, we took the decision to phase it out. We made a competitive offer to affected colleagues at that time, and many of them chose to accept this. Our aim has always been to engage constructively with Usdaw and the small number of colleagues affected.”
Matthew Howse, partner and London head of employment law practice at law firm Morgan Lewis & Bockius, said the Supreme Court ruling crated a minefield for employers looking to use the controversial tactics.
“This landmark decision puts substantial limits on ‘fire and rehire’ practices, especially for benefits described as ‘permanent’.
“It underscores the weight courts may give to such language in employment contracts. Employers will need to reconsider their strategies for implementing contractual changes. Moving forward, more collaborative approaches with employees and unions may be necessary to navigate significant alterations to employment terms.”
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