Implications for employers of the recent Supreme Court's fire and rehire decision

The Supreme Court's recent decision in Tesco Stores Ltd v USDAW and ors confirms that where an employer wants to remove certain benefits (in this case contractual enhanced pay) from employees by terminating their employment contracts on notice and re-engaging them on amended terms, they may find themselves fettered by an implied term that the employees cannot be denied those entitlements.

Background

In 2007 Tesco carried out an expansion programme which involved certain distribution centres closing. As an incentive for experienced staff to move to another site, Tesco and USDAW negotiated Retained Pay and the right to this pay was incorporated as an express term of their employment contracts. The Retained Pay was expressed to be a permanent feature and could only be changed in specific circumstances such as mutual consent or promotion. There was an express right for Tesco to terminate the contract on notice.

In 2021 Tesco wanted to remove the Retained Pay.  Affected employees were offered an advance payment of 18 months of Retained Pay to agree to terminate their Retained Pay rights. If they didn't agree they would be dismissed and re-engaged on the same terms but with their Retained Pay rights removed.

The Supreme Court restored the injunction against Tesco made in the High Court. This was on the basis that Tesco’s right to terminate the employment contract by giving the requisite notice was qualified by an implied term that Tesco’s right to dismiss cannot be exercised for the purpose of depriving employees of the right to Retained Pay.

What does this mean for employers?

Although the Supreme Court recognised that this was an unusual case, there are some key takeaways for employers.

Employers may sometimes find themselves making benefit promises early in negotiations when they are in a tight spot to get a deal over the line.  However the Supreme Court's decision should act as an important reminder to employers that those negotiations need to be carefully crafted with suitable qualifications such as duration of the benefits so that unwelcome consequences for employers don't result down the line when perhaps they want to terminate those contracts and remove those benefits.

In this case the employer wanted to use the fire and rehire practice – that is terminate employees’ contracts and offer re-engagement on amended terms and conditions where they were unable to get the employees' consent to change.  However this often common practice used by employers to implement necessary business changes is within the sights of the new government. The Labour government's Employment Rights Bill will end "the scourges of "Fire and Rehire"" and will reform the law to provide effective remedies and replace the "inadequate" existing statutory code of practice. Employers should now think carefully before they go down this route.

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