In Union of Shop, Distributive and Allied Workers & Ors v Tesco Stores [2022] EWCA Civ 978, the Court of Appeal overturned a High Court injunction against Tesco dismissing and re-hiring employees in order to remove a contractual entitlement to enhanced payment terms, known as ‘retained pay’. The retained pay clause dated back to 2007 when Tesco offered warehouse staff an incentive to move location during a restructuring of its distribution network―if they had declined the offer, they would have been eligible for redundancy payments of £6,000-£8,000.
The retained pay was stated as being permanent. One of the claimants, Jagpreet Singh received £134.70 per week retained pay. His contract stated: ‘This payment is part of your contractual terms… Retained pay will be uplifted by any future negotiated pay increases. Retained pay can only be altered in agreement with yourself and ceases where you agree to a promotion or where you request a fundamental shift change... In the event of a company-initiated change there would be no reductions in retained pay.’
In 2021, however, Tesco offered employees an advance payment of 18 months of retained pay in return for their agreement to remove the clause from their contract. If the employee did not agree, Tesco would terminate the original contract and offer to rehire the employee on different terms.
The High Court granted an injunction against Tesco terminating the original contracts. However, Lords Justice Bean, Newey and Lewis held there was no ‘mutual intention’ that contracts would continue for life, until normal retirement age, or until site closure; and no ‘mutual intention to limit the circumstances in which Tesco could bring the contracts to an end’. As a result, the contract could be terminated in the usual way.
Sarah Hooton, a partner in the employment team at Browne Jacobson, said: ‘While the issue of “fire and rehire” is not going away any time soon―a new statutory Code of Practice has been proposed to “clamp down on controversial tactics”―this decision will still be welcomed by employers as reducing the risk of future threats of injunctions.’
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