High Court halts deployment of ‘Fire and Rehire’ intended to change terms of employment

High Court halts deployment of ‘Fire and Rehire’ intended to change terms of employment

The High Court in Union of Shop, Distributive and Allied Workers (USDAW) and others v Tesco Stores Ltd granted an injunction on 3 February 2022 preventing Tesco, from deploying ‘fire and rehire’ to phase out an employee benefit. Although the facts of the case are unusual, the court’s willingness to intervene comes at a time when the practice of ‘fire and rehire’ is under intense scrutiny. It is a further signal that employers should be wary of the associated risks and particularly careful when defining the terms of exceptional benefits.

Union of Shop, Distributive and Allied Workers (USDAW) and others v Tesco Stores Ltd

 What is ‘Fire and Rehire’?

An employment contract can be amended in a few ways:

• with the express agreement of the parties
• through the unilateral imposition of the new terms and implied acceptance, or
• by terminating the existing employment contract and offering re-employment on the new terms (to ‘fire and rehire’).

Changing the contract through the express agreement of the parties is the optimal route—minimising (but not eliminating) the risk of subsequent disputes. Unilateral imposition runs the risk of accusations of breach of contract and (if an employee resigns in protest) claims of constructive unfair dismissal. To fire and rehire is often a last resort, and can run the highest risks, necessarily involving the termination of employment and the potential for unfair dismissal claims (among other claims).

What happened in the Tesco case?

Background

In the late 2000s, Tesco carried out a restructuring exercise during a programme of expansion. As part of the restructuring, certain distribution centres closed, new ones were opened, and others were restructured. To help retain certain employees who were to move distribution centres, an entitlement to ‘retained pay’ was negotiated through collective bargaining. To summarise, retained pay was designed to ensure that employees who were asked to move distribution centres were no worse off at their new centre—it ring-fenced their prior compensation.

In contemporaneous and subsequent communications to affected employees, the retained pay was variously described, including as ‘permanent’, ‘for life’, and ‘guaranteed.’ It was also a significant entitlement, equalling (in the case of one employee referenced by the High Court) approximately 39% of their wages. An express entitlement to the retained pay was incorporated into each affected employee’s terms of employment.

In January 2021, however, Tesco announced its intention to remove the retained pay. In a Q&A issued at the time, Tesco explained that the composition of the Tesco workforce had moved on since the introduction of the retained pay, the retained pay was a residual entitlement of a small number of employees, and it would help simplify its payroll processes. Tesco offered affected employees an advance lump sum equal to 18 months’ retained pay.

In the same Q&A, Tesco also made clear that if affected employees did not accept the change voluntarily, Tesco would propose to terminate their employment contract and offer to re-engage them on new terms, identical to their old contract, save for the removal of the retained pay element.

Claim

The claimants in the case (a trade union, USDAW, and certain affected employees) applied to the High Court for:

• a declaration that the employment contract of each affected employee contained an implied term that Tesco would not terminate employment specifically to remove the right to retained pay
• an injunction preventing Tesco from withdrawing retained pay or firing and rehiring to remove the retained pay.

Decision

The High Court found in favour of the claimants and granted the relief sought.

The High Court found that the mutual intention of the parties was that the entitlement to retained pay would be permanent for as long as each affected employee was employed in their particular role. This was fundamentally at odds with the right to terminate employment for the purposes of stripping the retained pay.

Given the circumstances (which the court said were ‘unusual’ and ‘extreme’) the court agreed it was necessary to imply the term sought by the claimants—that Tesco’s right to terminate employment on notice could not be used to remove or diminish the right to retained pay. Without such an implied term, the court stated that the entitlement to retained pay would not be permanent, and the contract would lack practical coherence.

Further, the High Court found that damages would not be an adequate remedy for the claimants and so awarded the requested injunction. If no such injunction were granted, and the employees’ employment terminated, their remedy would otherwise be limited to the losses recoverable in a claim for unfair dismissal, ‘with all the difficulties attendant upon such a claim’.

The High Court denied Tesco permission to appeal. It remains to be seen if Tesco will seek permission to appeal from the Court of Appeal.

Pro Employment Law

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