Tesco cannot fire staff and rehire on less favourable terms, the Supreme Court has held
In a unanimous decision this week, Tesco Stores v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28, five Justices including President Lord Reed reimposed an injunction blocking the supermarket giant from dismissing staff.
Tesco had offered staff enhanced pay, or ‘retained pay’, to relocate rather than accept redundancy in 2007. In 2021, it proposed either removing the pay enhancement in return for a lump sum or terminating employee contracts and reoffering on the same terms but without the increased salary.
Tesco argued its contractual obligation to pay retained pay lasts only until the contract ends. USDAW, the union, argued the obligation was permanent.
Delivering his judgment, Lord Reed said the intention behind offering retained pay ‘would be completely undermined if the contract permitted Tesco to dismiss the employees whenever it pleased… No reasonable person in the position of Tesco or the relevant employees could have intended the contract to have that effect’.
Neil Todd, partner at Thompsons Solicitors, acting for USDAW, said: ‘This decision illustrates that a court will intervene to give effect to the parties’ intentions when entering into a contract.
‘It also demonstrates that a right to an injunction is available regarding a breach of contract of employment when damages are not an adequate remedy, as was the case here.’
However, employment lawyers say the ruling will not prevent employers from using the tool of fire and rehire.
James Townsend, partner, Payne Hicks Beach, said: ‘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.’
Henry Clinton-Davis, partner at Arnold & Porter, said: ‘There has been a lot of hype about employers seeking to change employees’ terms and conditions through the tactic of “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.’
Clinton-Davis said: ‘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 ACAS Code of Practice, which itself only came into force on 18 July this year.
‘At the end of the day, 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.’
