As Usdaw’s case against Tesco heads to the Supreme Court, Andrew Burns KC explains what it could mean for fire and rehire situations if the union’s appeal is successful.
HR professionals are familiar with permanent and temporary employment. Temporary is for a fixed period and permanent means for an indefinite period until the contract is ended by dismissal or resignation. However in Usdaw v Tesco, the Supreme Court is looking at whether a ‘permanent’ term of the contract prevented an employer from dismissing at all.
Retail workers’ union Usdaw has asked the court to order that Tesco was not allowed to fire and rehire its staff because of a “retained pay” permanent term in their contracts.
Tesco fire and rehire case
Union gets permission to take Tesco fire and rehire case to Supreme Court
Fire and rehire is a controversial topic – particularly as during the pandemic high-profile employers used it to change employees’ contracts to cope with economic and business shocks.
The government consulted bodies including the Employment Lawyers’ Association and issued a new code of practice on fire and rehire, which says it is only reasonable as a last resort. The Labour Party have pledged to outlaw fire and rehire although it is not yet clear how.
Statute law permits an employer to fire and rehire where the employer has “some other substantial reason” for doing so, and acted reasonably in all the circumstances under section 98 of the Employment Rights Act 1996. Usdaw v Tesco will consider whether dismissals can be prevented using the common law.
Usdaw’s case against Tesco
In 2007 Tesco awarded a large pay increase, calling it “retained pay”, at a time of business change. It said it would be “guaranteed for life”. The claimants’ employment contracts contained standard clauses for dismissal and resignation by giving notice, but the retailer incorporated a term from the Usdaw collective agreement that said “retained pay will remain a permanent feature of an individual’s contractual eligibility”.
In 2021 Tesco asked its employees to buy out of retained pay. Some refused and Tesco proposed to fire and rehire them on the new terms without retained pay.
The Scottish courts granted an interim injunction restraining some proposed dismissals. Usdaw claimed a permanent injunction in England to prevent Tesco from firing and rehiring the claimants to remove their retained pay.
Usdaw won at the High Court, but lost in the Court of Appeal. Both noted that ‘permanent’ might mean an entitlement that is only permanent for as long as the particular contract endures. That would not conflict with Tesco’s right to terminate the contract on notice. However, the High Court judge found that this would contradict the “guaranteed/protection for life” that had been offered to the Tesco employees in 2007. She implied a term into the contract that the right to terminate it on notice cannot be exercised to remove retained pay and granted a final injunction on that basis.
The Court of Appeal disagreed with the meaning of the pre-contractual documents, saying that neither “guaranteed for life” nor “permanent” meant that the contracts could not be terminated and the employees offered a new contract. It was not a contractual promise to keep employees on even when the employer decided to dismiss them.
One consideration was that it would be odd for the power to terminate a contract to depend on whether or not the same person is later offered a different contract. The Court of Appeal held that the retained pay was permanent because it could not be removed by future collective bargaining. It was not a permanent right to stay in employment.
The Court of Appeal’s reasoning
The Court of Appeal rejected the implied term because it would mean that Tesco could never make redundancy selections that took into account the most costly employees, or could not dismiss expensive employees even if they were past retirement age. It reminded itself that an implied term cannot trump an express term. The line of cases which restrict an employer’s express right to dismiss are normally where that would deprive the employee of permanent health insurance or a similar benefit. The courts usually only step in when there is an internal contradiction or error in the words of the employment contract. A contract cannot both provide for a right to permanent health insurance benefits for disability absence and a right to dismiss for the same disability absence – that contradiction must be resolved by implying a term. The Court of Appeal found no contradiction.
The case now moves to the Supreme Court, which has previously shown in Uber that it is willing to take a purposive approach to protect workers’ rights. Usdaw is asking it to do the same with this somewhat unusual employment contract.
The case will not affect most employers as promises of permanent pay for life are not common features of UK employment. This may encourage the Supreme Court to take a more conventional view, meaning that employers keep an unfettered contractual power to dismiss by notice, but are constrained by unfair dismissal and reasonableness.
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The Supreme Court will hear the case on 23-24 April 2024.
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