Employment law experts have their say on the UK Supreme Court’s ruling that Tesco cannot fire and rehire distribution workers who receive ‘retained pay’.
‘Potentially disastrous’
Katie Maguire, Devonshires
“This is potentially disastrous for employers who have come to rely on this practice to implement a change in terms and conditions for employees. Before this judgment any employment solicitor would have advised a client that wanted to implement changes to contracts but were unable to obtain consent from the affected employee, to look to terminate the existing contract and offer re-employment on the new terms, also known as fire and rehire.
“For the Supreme Court to act in this way and injunct the employer from dismissing and re-engaging its staff shows that the courts are willing to intervene and look at the intention of the parties when the contract was entered into. This shows the direction of travel in terms of case law and could effectively prevent fire and rehire practices going forward. It acts as a significant warning to employers and very much shows that the pendulum of rights in the UK is swinging in favour of employees over employers, with new legislation and proposals from the Labour Party imminent that will expand the rights and protections for workers.”
‘A dramatic departure from the usual position’
Colin Godfrey, Taylor Wessing
“Importantly this case did not consider the practice itself, but whether it was lawful to change the contract to remove employees’ right to an enhanced pay award referred to as ‘retained pay’. When it was introduced it was described as being a ‘permanent feature’ of employees’ contracts, and Usdaw argued that this prevented Tesco from firing and then re-hiring employees to remove it from their contracts.
“In a move which surprised many the High Court took the unusual step of issuing an injunction preventing Tesco from dismissing affected employees, deeming that the reference to retained pay being a permanent feature resulted in an implied term that Tesco would not dismiss with the purpose of removing the right to retained pay.
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“The Court of Appeal overturned that decision, finding that no such implied right existed and Tesco had, like all employers, the right to terminate a contract on notice and it was inappropriate to issue an injunction stopping the dismissals. In a groundbreaking ruling, the Supreme Court has now overturned the Court of Appeal’s decision and restored the injunction issued by the High Court.
“In its judgment, the Supreme Court concluded that the employees’ contracts contained an implied term which meant that Tesco’s right to terminate the contracts could not be exercised for the purpose of depriving the employees of their right to Retained Pay. It marks a dramatic departure from the usual position that, where it is not possible to agree a contractual change, an employer can opt to terminate that contract by giving notice in line with its terms.
“The decision could have wide ramifications for UK employers who seek to change employees’ contractual rights where those rights were expressed to be an enduring feature. It highlights just how careful employers must be when agreeing contractual terms, and how potentially loose language, even in negotiations, about the intended permanence of those terms can prevent changes and even inhibit the ability to fire and re-hire on new terms.
“The decision will add even greater scrutiny to fire and rehire, and proposed changes under the Labour government are likely to make this an even more tightly regulated practice. Employers would be well advised to tread especially carefully whenever the need to implement changes arises.”
‘Fire and rehire remains a useful tool’
James Townsend, Payne Hicks Beach
“Although in this case Tesco found themselves the subject of a restraining injunction, fire and rehire, done fairly and in accordance with legal requirements, remains a useful tool for employers seeking to change employment terms and conditions where employees unreasonably refuse to vary their terms and conditions of employment.”
‘Do we need the government to legislate on fire and rehire?’
Henry Clinton-Davis, Arnold & Porter
“There has been a lot of hype about employers seeking to change employees’ terms and conditions through fire and rehire. The facts of this case were a little unique because the pay supplement had been expressly offered for the duration of the employees’ employment. The court felt it would ‘flout common sense’ were the company able to remove the benefit by dismissing the employees and offering them employment on new terms.
“The new Labour government is seeking to ban the practice of fire and rehire, save in very exceptional circumstances. But do we really need the government to go that far? The reality is that fire and rehire has almost always been seen as a tactic of last resort, as emphasised by the new Code of Practice, which itself only came into force on 18 July this year.
“There are times when perfectly reasonable proposals to change terms are rejected, however much consultation has taken place, and where the fire and rehire alternative may be the only way to implement the proposed changes. The alternative is that employers are stuck with old and outdated terms and practices, the continuation of which will damage the business, and ultimately job prospects for the employees concerned.”
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