Tesco’s ‘Hire, Fire and Rehire’ To Avoid Retained Pay Was Unlawful
We don’t usually cover employment-related developments, but a recent Supreme Court ruling could impact many business organisations who may be minded to unilaterally remove a party’s contractual express rights.
The SC decided it was unlawful for an employer to rely on ‘fire and rehire’ tactics to remove employees’ financial benefits which were contractually described as ‘permanent’.
What’s the background?
In 2007, supermarket giant Tesco entered into a collective agreement with its recognised trade union and agreed to provide retained pay to employees who agreed to relocate to other stores. This right was incorporated as an express term in the employees’ contracts and was expressed to be permanent (subject to conditions).
In 2021, Tesco purported to end the retained pay, telling employees they would be dismissed and offered re-engagement if they did not agree to its removal.
At issue was whether Tesco could terminate employment contracts specifically to deprive them of the retained pay. The case raised fundamental questions about an employer’s contractual right to terminate an employment contract by giving the requisite notice to the employee.
SC overturned the appeal court’s decision that had allowed Tesco’s. It ruled that Tesco could not exercise its right to terminate the employment contracts for the purpose of depriving employees of their right to retained pay.
Implied by fact
On the correct statutory interpretation of the clause, Tesco’s right to terminate the employment contract with requisite notice was qualified by a term implied by fact: that its right to dismiss could not be exercised for the purpose of depriving employees of the right to retained pay.
That implied term was necessary to satisfy the business efficacy test. Further, it was so obvious that it goes without saying. Furthermore, the SC observed that it was “inconceivable that the objective mutual intention of the parties was that Tesco should retain a unilateral right immediately to dismiss these employees for the purpose of removing the right to RP”.
An injunction granted by the High Court judge restraining Tesco from acting in breach of the implied term was restored.
What does this mean?
The ruling is clear that businesses cannot unilaterally alter the express terms of a contract without good, contractual reasons. Had there been a breakdown in mutual trust and confidence between the employer and employees, for example, Tesco would have had a strong case.
Ending or altering the terms of an employment contract or other business contract in a way that ‘flouts industrial common sense’ (as the SC put it) and goes against the parties’ clear mutual intention when the term was agreed, will not withstand legal scrutiny.
Expert legal advice from commercial and employment solicitors should be sought before taking steps to end or vary business and employment relationships.
1Tesco Stores v USDAW [2024] UKSC 28
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you