The High Court has granted an injunction preventing Tesco from using so-called ‘fire and re-hire’ to implement changes to terms and conditions for some of its workforce.

Tesco recognises USDAW for collective bargaining purposes for staff below the grade of Team Manager at certain of its distribution sites. Between 2007 and 2009 Tesco implemented a programme which resulted in the closure of certain existing distribution centres, the expansion or restructuring of others and the opening of new sites. Tesco considered that it needed to ensure that it would not lose existing employees through redundancy as the staff could not be compelled to relocate. In order to mitigate against that, Tesco negotiated with USDAW an entitlement to Retained Pay as an alternative to the lump sum redundancy payment which would otherwise have been payable. Retained Pay essentially represented the difference in value of pay and benefits between the contracts at the old sites and the new contracts at the new sites as an incentive to relocate rather than taking redundancy. In communications with staff Tesco committed to increasing the Retained Pay annually in line with any annual pay rise and stated that it was permanent, guaranteed for life and could not be negotiated away. The proposed terms were approved in a ballot of USDAW members.

In 2010, USDAW and Tesco entered into a collective agreement which also stated that Retained Pay would remain a ‘permanent’ feature of the relevant employee’s contracts. This term was incorporated in individual contracts of employment.

On 18 January 2021 Tesco formally announced its intention to remove Retained Pay. All employees in receipt of Retained Pay were asked to agree to its removal in return for a one- off payment of 18 months’ Retained Pay. Tesco stated in communications to staff that if they were unable to agree the contractual change, they would be proposing to terminate individual contracts and offer re-engagement on the new terms (so-called fire and rehire).

A number of employees refused to consent to the removal of Retained Pay and together with the union brought proceedings in the High Court seeking an injunction preventing Tesco from going ahead with the proposed termination and re-engagement. The claimants were all employees who accepted Retained Pay and relocated rather than accept a redundancy payment of between £6,000 and £8,000. They gave evidence that the sole reason for their agreement to relocate was the Retained Pay offer.

The claimants submitted that the express term as to Retained Pay incorporated in each contract of employment ought to be construed to mean that for as long as each affected employee remained employed by Tesco in the relevant role, his entitlement to Retained Pay could not be removed, including by termination and re-engagement under a new contract. Alternatively, Tesco’s otherwise unfettered express power to give notice to terminate the contract of employment could be subject to an implied restriction in the circumstances, which would preclude Tesco from dismissing any affected employee other than for good cause independent from the removal of Retained Pay.

Tesco submitted that each individual claimant’s contract of employment included an express term which entitled him to Retained Pay for as long as his employment continued under the terms of the contract, but that Tesco was entitled to terminate those contracts in accordance with their express terms.

The High Court concluded that at the time the clause regarding Retained Pay was incorporated in the claimants’ contracts of employment it was the mutual intention of the parties that the entitlement to Retained Pay would be permanent for as long as each affected employee was employed in the particular role. The clear mutual intention was to preserve the higher pay which each affected employee had enjoyed at his original distribution centre, without which relocation to a workplace 45 miles away would not have been palatable. Accordingly ‘permanent’ should be construed to mean for as long as the relevant employee is employed by Tesco in the same substantive role. On the unusual facts of this case, the High Court was satisfied that it was necessary to imply into the contract of employment a term to the effect that Tesco’s right to terminate the contract on notice cannot be exercised for the purpose of removing or diminishing the right to Retained Pay. Without such a term the employee’s entitlement to Retained Pay would not be permanent and the contract would lack practical coherence.

It would have been open to Tesco to seek to set a longstop date for the entitlement to Retained Pay and/or to make clear that it subsisted only for as long as the particular contract endured.

The High Court considered that justice to the claimants lies in ensuring that the terms of all affected employees’ contracts of employment are definitely declared; the Court therefore granted declaratory relief eligibility for Retained Pay endures as long as the employee continues to be employed in the substantive role and any term by which Tesco is entitled to give notice to terminate is subject to an implied term whereby that right cannot be exercised for the purpose of removing or diminishing the right of that employee to receive Retained Pay.

The High Court was also satisfied that it was just and convenient to grant final injunctive relief. Tesco has made clear its intention to terminate the existing contracts of employment and to offer re-engagement on less favourable terms which would not include a right to Retained Pay. Such a course would cause significant injury to the claimants’ legal rights. Damages would not be an adequate remedy in that event given that their remedy would be limited to the losses recoverable in an unfair dismissal claim. Under the terms of the injunction, Tesco is restrained from (i) giving notice to terminate the contract of employment contrary to the implied term whereby the right to terminate cannot be exercised for the purpose of removing or diminishing the right of that employee to receive Retained Pay; and/or (ii) otherwise withdrawing or diminishing or causing the withdrawal or diminution of Retained Pay for any affected employee.

The High Court refused permission to appeal.

It is extremely rare for terms to be implied into a contract of employment which restrict an employer’s right to terminate that contract in accordance with its terms, and rarer still for injunctive relief to be given in the employment field (outside the context of industrial action). The facts of this case were unusual, but this decision should act as a warning that promises to ring-fence pay, benefits or other terms and conditions should be considered very carefully and made conditional or time limited wherever possible in order to maintain flexibility to make changes in the future when circumstances may have changed.