Supreme Court grants injunction to stop Tesco firing and rehiring employees

Summary

The Supreme Court has handed down its judgment in Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others.

The Supreme Court held that the Court of Appeal was wrong to overturn the High Court's decision granting an injunction restraining Tesco from firing and rehiring employees in order to remove a permanent contractual entitlement to enhanced pay. The Supreme Court reinstated the injunction.

Facts

In 2007, Tesco planned to close some of its distribution centres and open new ones. It offered a substantial enhancement to pay for staff who were willing to relocate to the new centres. The enhanced pay was referred to as "retained pay". Tesco recognises USDAW for collective bargaining purposes. It entered into a collective agreement with the union in 2010, which confirmed the terms of retained pay. The right to receive retained pay was incorporated into employees' contracts of employment. Retained pay was described as "permanent": it could only be changed by mutual consent, on promotion or where the employee requested a change to working patterns.

In 2021, Tesco wanted to end retained pay. It gave notice to the relevant employees that it intended to seek their agreement to remove retained pay from their contracts in return for a lump sum payment. Where employees did not agree, Tesco planned to dismiss them and offer them re-engagement on the same terms but without retained pay ("fire and rehire").

Some of the employees refused to give up retained pay and brought a claim in the High Court, together with their union. They sought a declaration that their employment contracts included an implied term that Tesco could not terminate their contracts in order to remove retained pay. They also sought an injunction preventing Tesco from terminating their contracts. The claim succeeded in the High Court, which granted an injunction. Tesco appealed to the Court of Appeal and was successful, meaning that the injunction was overturned. USDAW then appealed to the Supreme Court.

Decision

The Supreme Court allowed the appeal and reinstated the injunction. It held that the contracts of employment included an implied term with the effect that the employer's right to terminate could not be exercised for the purpose of depriving the employees of their right to retained pay. Tesco's right to dismiss for any other reason (such as lack of capability, incapacity, misconduct or redundancy) remained unaffected by this implied term.

Key takeaways

Although this case appears to turn on its own facts since it concerns a collective agreement between Tesco and USDAW, and the Supreme Court described it as "an unusual case", there are two points that apply to all employers:

• Employers need to be careful about the wording when negotiating contractual terms, particularly when a union is involved. The Supreme Court noted that Tesco could have negotiated a longstop date for the entitlement to retained pay or made it clear that retained pay could be withdrawn if an employee was dismissed with notice and then re-employed in the same role, but it did neither.
• The decision confirms that, in exceptional circumstances, a court can grant an injunction requiring an employer to continue employing an employee in circumstances where there has been no breakdown of mutual trust and confidence and damages would not be an adequate remedy. However, a similar injunction could not be granted to force an employee to continue working for an employer - section 236 of the Trade Union and Labour Relations (Consolidation) Act 1992 prohibits this.

Other points to note

A new statutory Code of Practice on dismissal and re-engagement came into effect on 18 July and applies where the employer raises the prospect of dismissal and re-engagement with the employee or the employee's representatives on or after that date.

The Labour Government has committed to ending "fire and rehire" by reforming the law to provide effective remedies and replacing the statutory Code of Practice. We expect this measure to be included in the new Employment Rights Bill, which the Government has said it will publish within its first 100 days in office, ie by 13 October.

If you have any queries on this article or would like to discuss how the Supreme Court decision affects your organisation, please get in touch with your usual Womble Bond Dickinson contact. If you're interested to hear more about the Employment Rights Bill, register now for our free webinar on Tuesday 15 October at 10am here.