‘Fire and Rehire’ – Tesco v. USDAW in the Supreme Court

We recently wrote about the new Labour government’s proposals on the use of ‘fire and rehire’, which employment lawyers refer to as ‘dismissal and re-engagement’.

Tesco, one of the UK’s largest supermarket retailers, was recently defeated in the Supreme Court in a high-profile case about its proposed use of this practice against its employees. The dispute with the Union of Shop, Distributive and Allied Workers (USDAW) began in 2021, following Tesco’s plans to remove an enhancement to employee remuneration known as “Retained Pay”, which it had introduced in 2007 during a restructure of its distribution centre network, as part of its agreement at the time with USDAW.

During its negotiations with USDAW, Tesco had told employees that Retained Pay was “guaranteed for life”, would be paid to them “for as long as you are employed by Tesco in your current role” and that it “cannot not be negotiated away”. Retained Pay was intended to encourage experienced Tesco employees to remain in their roles while being relocated to other places of work.

In 2010, Tesco and USDAW entered into a collective agreement which included an express term to the effect that Retained Pay would “remain a permanent feature of an individual’s contractual eligibility”, and the parties agreed that the term would be implied into each relevant employee’s contacts of employment.

In 2021, following a failure to reach collective agreement with USDAW, Tesco announced plans to remove Retained Pay and offered staff currently in receipt of it a payment in lieu of 18-months of Retained Pay in return for terminating their future entitlement to it.  Employees were told that if they did not accept the lump sum payment, they would be dismissed and re-engaged on the same terms, save that they would no longer be entitled to Retained Pay.

USDAW commenced proceedings in the High Court seeking an injunction preventing Tesco from doing this, and were successful. The High Court found that the intention of the parties had been for Retained Pay to remain a permanent feature of employees’ contracts for as long as they were employed by Tesco in the same role, and therefore implied a term into the employment contracts providing that Tesco’s right to terminate on notice could not be exercised for the purpose of removing the right to Retained Pay.

Tesco appealed successfully appealed this decision. The Court of Appeal disagreed with the High Court and found that the parties had not mutually intended that Retained Pay should continue until employees reached retirement age, but that it merely could not be negotiated away by way of collective bargaining.

Following an appeal by USDAW, the Supreme Court unanimously overturned the decision of the Court of Appeal and granted the injunction sought by USDAW. It found that the word “permanent” in this context should be given its ordinary meaning, that the entitlement was not limited in time and that Retained Pay should continue to be paid for as long as employees remained employed by Tesco in the same role. The Supreme Court agreed with the High Court’s decision to imply a term preventing Tesco from dismissing staff on notice for for the purpose of removing the entitlement to Retained Pay, as the absence of such a term would fly in the face of the intention of the parties when entering into the collective agreement.

This case, of course, was based on an unusual set of facts and its conclusions cannot be applied to all situations involving dismissal and re-engagement, given the involvement not only of a recognised trade union but crucially, the collective agreement which informed the Supreme Court’s decision and Tesco’s (doubtless now sorely regretted) statements at the time concerning its intentions regarding Retained Pay.

That said, Tesco’s failure in this case to use the tool of dismissal and re-engagement is of note given the the Government’s well-publicised intention to “end the scourges of ‘fire and rehire’ and ‘fire and replace” and the recent Employment Rights Bill 2024 which is currently making its way through Parliament.

Depending on the exact statutory wording on dismissal and re-engagement that makes it into the eventual new Employment Rights Act, the (undoubtedly controversial) use of ‘fire and rehire’ could be limited significantly.

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This article was prepared with the invaluable assistance of Alexei Veremey, who works at Waterfront as a paralegal.