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Facts: In 2007, Tesco undertook a reorganisation of its distribution centres. This involved closing some sites, opening new ones, and expanding others. Tesco wanted to relocate a number of staff, rather than make them redundant. To incentivise such staff to move, Tesco agreed to uplift their pay (as an alternative to a lump sum redundancy payment).
This uplift, known as ‘retained pay’, was enshrined in the employees’ contracts in 2010 via a collective agreement negotiated with the Union of shop, distributive and allied workers (USDAW). The agreement described retained pay as a ‘permanent’ entitlement which could only be changed by agreement or promotion to a new role. Also, in its pre-contractual communications with staff, Tesco had stated that retained pay ‘remains for as long as you are employed by Tesco in your current role’, could not be negotiated away and was ‘guaranteed for life’.
However, in January 2021 Tesco back-tracked and announced it intended to remove retained pay. Those employees who accepted the change would receive 18 months’ pay in return, but those who refused would be dismissed and re-engaged under new contracts not containing the retained pay clauses.
USDAW said using fire and rehire in this way would be in breach of contract. It sought a declaration from High Court that the affected employees’ contracts were subject to an implied term preventing Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the employees’ right to retained pay. It sought an injunction to prevent Tesco from terminating the employees’ contracts of employment.
High Court decision
The High Court agreed with USDAW. It made the requested declaration and granted the injunction. It said that using the words ‘permanent’ and ‘guaranteed for life’ meant Tesco intended to preserve the higher pay indefinitely and there was an implied term that Tesco would not terminate the contract to avoid this.
Tesco appealed.
Court of Appeal decision
The Court of Appeal upheld Tesco’s appeal. It said there was no such implied term. Neither ‘guaranteed for life’ nor ‘permanent’ meant that Tesco could not dismiss and re-engage. It only meant it was guaranteed for the life of a particular contract of employment. There was no intention to limit the circumstances in which the contracts could be brought to an end. Also, an implied term should not trump an express contractual right – in this case to give notice to terminate the contract.
USDAW appealed.
Supreme Court decision
The Supreme Court upheld USDAW’s appeal. It reinstated the injunction preventing Tesco from removing the employees’ entitlement to retained pay and from dismissing and re-engaging them.
The Court disagreed with Tesco’s argument that although retained pay was a permanent feature of the contract, it was subject to the company’s unqualified right to terminate the contract on notice at any time. It said that this interpretation would undermine the express promise of permanence made to employees and Tesco could not eliminate the benefit by terminating and re-engaging them.
In reaching this decision the Court referred to the pre-contractual promises that Tesco had made to the workers during negotiations that retained pay would be protected ‘for life’. Even though the same wording was not expressly stated in the workers’ contracts, the Court was willing to rely on it as evidence of the parties’ intentions when entering into the contract in the first place.
The Court held that it was inconceivable that both parties intended that Tesco should retain a unilateral right to dismiss the employees so that it could remove the right to the retained pay. (It also noted that Tesco’s right to dismiss for any other reason other than to remove the right to retained pay was unaffected by the existence of this implied term).
The Court went on to conclude that damages would be an inadequate remedy in this case, as assessing damages would involve significant speculation and uncertainty. Rather an injunction restraining Tesco from acting in breach of the implied term (by dismissing the employees) was the appropriate remedy.
Implications: Although this case is fairly extreme (employers don’t usually guarantee anything for life (let alone money) and injunctions are rarely granted) it is a good reminder:
The decision also highlights how controversial fire and rehire remains. To the extent that the Government has announced in its Employment Rights Bill that it will be banned (almost) altogether. When the new law comes into effect (most likely in 2026) it will become automatically unfair to dismiss an employee for refusing a contract variation (unless the employer is in such dire financial straits it is critical to do so). In the meantime, employers will need to continue to comply with the steps set out in the statutory Code of Practice on Dismissal and Re-Engagement (which came into force on 18 July 2024) to avoid a 25% uplift in compensation for claims such as unfair dismissal.
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