Every Little Helps: Injunction granted to stop Tesco firing and re-hiring

Tesco: Multi-billion-pound retailer found in most towns across the UK. However, they have joined several other supermarkets in facing public humiliation for their actions in the courts.

Over a decade ago, Tesco negotiated with USDAW, a union recognised for the purposes of collective bargaining, that employees would contractually receive ‘retained pay’ as an alternative to a redundancy payment when Tesco reorganised their distribution centres. This ensured that employees were retained by the business because they had an incentive to relocate, rather than be made redundant. It was made clear that the retained pay benefit would remain for as long as employees were employed within their existing roles, would increase according to pay, and could not be negotiated away. It was a permanent feature of an employee’s contract.

In January 2021, Tesco announced their intentions to remove this entitlement because it had effectively served its purpose. Despite having stated it would not be negotiated out of their contracts, they offered an up-front payment of 18 months’ retained pay in return for the removal of the provision from the contract. Any employees who did not agree to this would be fired and re-hired, a practice widely panned and notable in the media recently regarding British Gas. A number of employees raised objections on the basis that their mortgages were tied to the higher rate of pay and, in the Claimants’ cases, the retained pay accounted for 32-39% of their remuneration.

USDAW applied to the High Court for a declaration that 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 employee's right to retained pay. USDAW also sought an injunction preventing Tesco from terminating the affected contracts.

In the High Court, the relief sought was granted on the basis of the intention of the parties when providing for the retained pay benefit. The Judge found that the intention was to preserve this higher rate of pay on the basis that their relocation would not have occurred had the right not been provided. This created a conflict between this right and Tesco’s ability to terminate the contract to remove the right. This further led to discussion on an implied term that the contract could not be terminated for this purpose. This was found to be correct on the basis that the right wouldn’t have been permanent if this was the case – an outside observer would have construed the same on the basis of the language used. Therefore, whilst Tesco retained the right to dismiss for a good cause, they could not do so for the purpose of removing the rights to retained pay.

What should you be doing now?

This case was unusual and highly fact specific so this doesn’t mean an end to the tactic, but it will sound off alarming bells for employers seeking to ‘fire and re-hire’, which is already risky enough based solely on reputational damage. If an employer is keen to engage with such a tactic, they should closely examine the contracts and agreements made to ensure that they are not left in the same position as Tesco. In particular, employers should avoid suggesting permanence to any such benefits.

Recommended reading

The full judgment from the case can be read here. 

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.