The UK’s highest Court, the Supreme Court, has today (Thursday, 12 September 2024) ruled in favour of the retail trade union Usdaw and several of its members employed by Tesco Stores Ltd. as Warehouse Operators in a legal battle over ‘Fire and Rehire’ tactics.
The judgment overturns the Court of Appeal’s decision in July 2022, which found in favour of Tesco. Instead, it agrees with the High Court judgment in February 2022 to grant an injunction to prevent Tesco from proceeding with a ‘Fire and Rehire’ exercise that removed workers’ right to a payment, known as ‘Retained Pay’, received under their contracts of employment.
All five judges in the Supreme Court disagreed with the conclusions of the Court of Appeal.
In the Leading Judgment from Lord Burrows and Lady Simler, it was held that the employees in question were employed under a contract with an express term providing for ‘Retained Pay’ on a permanent basis, which would subsist for as long as their employment in the same role continued.
The Court identified that, as a consequence, the main issue was whether it needed to imply a term into the employment contracts that would restrict Tesco’s general right to terminate contracts with notice if the termination was to remove the employees’ entitlement to “permanent Retained Pay.”
In other words, the Court had to decide if it was necessary to limit Tesco’s ability to dismiss employees specifically to avoid paying the ‘Retained Pay’ promised as a permanent benefit. The Court concluded that implying a term was necessary to prevent Tesco from terminating employment if the purpose was to remove the employees’ right to Retained Pay.
In the leading judgment Lord Burrows and Lady Simler make clear: “We agree with the submission on behalf of the claimants that it is necessary, applying the business efficacy test, to imply a term in the contracts to qualify Tesco’s right to dismiss on notice so that it cannot be exercised for the purpose of depriving the claimants of their right to permanent retained pay. That implied term is necessary (or, alternatively, it is so obvious that it goes without saying) in order not to undermine the promise that retained pay would be a ‘permanent’ feature of contractual entitlements for the relevant employees (subject only to the qualifications specified by the retained pay term).” Paragraph 43
This implied term was needed to uphold Tesco’s promise that Retained Pay would remain a permanent part of the employee’s contractual rights. By implying this term, the Court ensured that the original intentions of both parties at the time the agreement was made were honoured.
The Supreme Court also concluded that the High Court had been right in February 2022 to grant an injunction to prevent Tesco from firing and rehiring the employees as damages would be an inadequate remedy.
“In our view, damages would be an inadequate remedy in this case. To work out the quantum of damages would require speculation as to how long the employees would have otherwise remained employed by Tesco and, if they were to be lawfully dismissed, what their prospects would be of mitigating their loss by finding alternative employment. In short, the assessment of damages would be very difficult and prone to error. Moreover, it would be resource intensive and potentially costly (perhaps requiring expert labour market evidence). Of course, if there were no alternative, the courts would assess the damages as best they could in the light of the relevant evidence. But an injunction, amounting to indirect specific performance, avoids all such difficulties.” Paragraph 77
Calculating appropriate damages would require speculation as to how long the employees would otherwise have remained employed by Tesco and their prospects for mitigating that loss.
Furthermore, damages for wrongful dismissal would not compensate for the distress caused by losing a job. On that basis, an injunction was appropriate to prevent Tesco from dismissing the employees in question, given that the reason was to deprive them of their right to ‘Retained Pay’.
Neil Todd, a partner in the trade union law group at Thompsons Solicitors, said: “This is a fantastic judgement for Usdaw and the members concerned. Those in receipt of Retained Pay were promised unequivocally that they would be afforded a permanent benefit under their employment contract if they agreed to remain with the business and support it when it needed them most.
“They were then threatened with ‘Fire and Rehire’ when Tesco considered that the benefit had served its purpose. 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.
“The injunction will prevent this important right from being stripped away. The litigation has been hard fought, but we are delighted to achieve an outcome that we consider just in all circumstances.”
Paddy Lillis, Usdaw General Secretary, said: “Usdaw has been determined to stand by its members in receipt of this valuable benefit that constituted a key component of their pay. We recognised that they had been afforded this payment because of their willingness to serve the business, and it was on that basis that we agreed with Tesco that it should be a permanent right.
“When we said permanent, we meant just that. We were therefore appalled when Tesco threatened these individuals with fire and rehire to remove this benefit. These sorts of tactics have no place in industrial relations, so we felt we had to act to protect those concerned. We were very disappointed with the outcome in the Court of Appeal but always felt we had to see this case through.
“We are therefore delighted to get this outcome, which is a win for the trade union movement as a whole.”
Patrick Howarth, partner at Foot Anstey, comments: “Today’s judgment in the Supreme Court is an evident victory for USDAW against Tesco in this important employment case for the retail sector. The Supreme Court has overturned the decision of the Court of Appeal by determining that the words in the contract which provided Tesco employees with “permanent” retained pay for the life of the contract couldn’t be removed by using the mechanism of fire and re-hire.
“This case has been wrongly painted with the same brush as a number of the fire and re-hire cases hitting the headlines recently, with the facts of the case expanding beyond this. It always was and remains currently possible for employers to ‘fire and rehire’ in order to change contractual terms. For it to be lawful there needs to be a substantial reason for doing so, consultation with employees to try to reach agreement first, and compliance with the ACAS Code of Practice on dismissal and re-engagement.
“Retailers and other employers should not be concerned that their right to change terms of their employees’ contracts has been removed. It hasn’t. The most important takeaway for employment professionals and HR teams for this case is that communications between unions, employers and issued during consultation were held to be relevant to the interpretation of what particular contractual terms actually meant. Today’s judgment acts as an important reminder that careful drafting of all communications is essential. Ultimately, today’s ruling will bring into focus a number of tensions within the fire and re-hire debate but its implications for the wider employment landscape remain to be seen.”
