Lawyers for 42 Tesco workers are claiming a victory in the High Court today over what they said were proposals by the supermarket to issue notices of termination and offer re-engagement on new terms which did not include retained pay.
Tesco said it had made a fair offer to employees and that its management was using a “contractual mechanism” open to employers. It said it was considering an appeal.
Mrs Justice Ellenbogen considered arguments at an online High Court hearing in May after being asked by unions to “restrain” Tesco.
Shopworkers’ union Usdaw had brought the case on behalf of 42 workers employed by Tesco at distribution centres in Daventry, Northamptonshire and Litchfield, Staffordshire.
Lawyer Neil Todd, who represented Usdaw and is based at Thompsons Solicitors, said, after the ruling: “This is a huge win for the workers and for Usdaw.
“The practice of firing and rehiring staff on less favourable terms and conditions has been in widespread use over the last 18 months as employers try to erode rights that have been hard fought for and are there to protect some of the lowest paid in society.”
This is a huge win for the workers and for Usdaw” – Neil Todd, Thompsons Solicitors
A spokeswoman for Thompsons Solicitors said Usdaw had succeeded in a claim against Tesco which would “protect its workers from unfair fire and rehire tactics”.
“The group faced having their wages cut as part of a change to their terms and conditions of employment by Tesco,” she added.
“Today’s High Court ruling will prevent the supermarket’s ‘fire and rehire’ practice in this case where it had sought to lay people off and re-employ them on new contracts, with less favourable terms and conditions, in England.
“The court noted that the 42 workers had been guaranteed an entitlement to a specific payment labelled ‘retained pay’ to keep them within the business, which Tesco intended to remove by firing and then rehiring them. The judge held that there was an implied term in the workers’ contracts that the right to terminate employment could not be exercised if the aim was to remove a right to ‘retained pay’.”
Todd added: “Tesco had made unequivocal commitments to its workers who had come into work throughout the lockdown, when it needed them most. The court agreed that, in those circumstances, it wasn’t then open to them to deploy fire and rehire tactics when it suited them.
Employee contracts
‘Fire and rehire’: explore alternative options first says Acas
Tesco workers in Scotland have already secured an injunction, pending a full trial, on the same proposal.
Joanne McGuinness, Usdaw’s national officer, explained the background to the case: “In this case, in around 2007 Tesco was beginning a vital distribution expansion programme and therefore to ensure that valued members of staff agreed to transfer location to new distribution sites, Tesco made assurances that those staff would retain the difference in their pay between their existing package and the new terms and conditions they would move to at those new sites.
“Importantly they assured Usdaw that this would not be removed at a future date. Despite this, some 14 years later Tesco reneged on its promises and sought to buy out this retained pay and threatened its employees with dismissal if they did not sign up to a new contract without the retained pay element. Tesco refused to negotiate with Usdaw who were left with no option but to seek a legal solution so as to protect its members’ pay.”
TUC general secretary Frances O’Grady welcomed the “resounding victory”.
She added: “Too many employers think they have free rein to threaten workers in secure jobs with the sack if they don’t accept a new contract on worse pay or conditions.
“Today’s judgment is an important win against an employer trying to use this scandalous practice to end a promised permanent benefit. But we can’t just rely on the courts to protect working people using current weak laws – we need action from government too.
“It’s time for ministers to finally deliver on their manifesto promise to protect and enhance workers’ rights – that means stopping fire and rehire without delay.”
Tesco expressed disappointment with the ruling and told Personnel Today: “A very small number of colleagues in our UK distribution network receive a supplement to their pay, which was offered a number of years ago as an incentive to retain colleagues.
“We now have over 16,000 colleagues working in distribution, the vast majority of whom do not receive this top up, and so we took the decision last year to phase it out. We made a fair offer to colleagues, and many of them chose to accept this. We are disappointed with today’s outcome and we are currently considering whether we will appeal this decision.”
Legal comment
Employment director at Beyond Law Group, Lucy Flynn, puts the verdict into the context of Acas’s fire and rehire guidance:
“Today, courts deemed that Tesco was acting “unconscionably” by trying to “unilaterally remove” workers’ entitlement to retained pay. This is unsurprising given that Acas has made it clear that fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations.
“In its guidance of November 2021, Acas deals with both fire and rehire and imposing new terms of employment without agreement and states that employers should thoroughly explore all other options before deciding to take either of these steps. They both carry significant legal risks and can damage working relations, morale and levels of performance in your organisation. As such, it should be used with caution and only after extensive attempts to reach agreement on any proposed change.
“To avoid incidents such as what we have seen with Tesco, employers should consider whether any alternatives are available: for example, making non-permanent arrangements, asking for volunteers for redundancy or change, limiting changes to new recruits or “buying off” the change with other incentives, such as additional holidays.However, and despite its unpopularity, if changes cannot be agreed then fire and rehire can still be lawful if done properly.
“For dismissal of any employee to be fair, there must be a fair reason for dismissal and the employer must have followed a fair process. Employers who cannot avoid firing and rehiring and can show that there is a sound business reason for doing so may be able to rely on ‘some other substantial reason’ (SOSR) as the potentially fair reason for dismissal under the Employment Rights Act 1996.”
She said that where a proposal to fire and rehire involved 20 or more employees, the employer should be mindful of its legal duty to perform a collective consultation and follow the specific rules regarding collective consultation over a specific time period, which included:
- notifying the Redundancy Payment Service using form HR1 that 20 or more redundancies are being considered
- consulting with trade union or employee-nominated representatives
- providing specific information to the representative(s)
Where there were fewer than 20 employees involved (and in any event) employers should try to reach agreement on changes to terms and conditions with as many employees as possible before making a decision to fire and rehire on the new terms, said Flynn.
“If an employer follows a proper consultation process, following which a change cannot be agreed, and dismissal and re-engagement cannot be avoided, then the employer should:
- establish a sound business reason to justify dismissal
- follow a fair procedure
- give (or pay in lieu of if the contract allows) the correct contractual notice to the employee
- make the offer to re-engage on the new terms to being immediately on termination”
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