The UK Supreme Court has ruled in favour of retail trade union Usdaw and its members in a significant decision against Tesco’s use of ‘fire and rehire’ tactics. This ruling comes after Tesco sought to remove the retained pay benefit from employees’ contracts – a benefit initially promised as being permanent.
The decision sets an important precedent for employment rights, protecting workers from having contractual benefits taken away from them through unfair practices.
Tesco’s attempt to remove retained pay
The dispute arose when Tesco tried to eliminate the retained pay benefit, which had been promised to employees who agreed to relocate to new distribution centres during a time of company restructuring. This benefit was designed as a permanent reward for their loyalty and willingness to move during a critical time for Tesco.
By 2021, Tesco aimed to phase out retained pay, offering employees a one-off lump sum payment to surrender this benefit. Those who refused were faced with a difficult choice – accept the termination of their current contracts and be rehired on new terms without retained pay, or lose their jobs. Usdaw, representing the affected employees, challenged this tactic, arguing that it violated the original contractual agreement, which guaranteed retained pay as a permanent benefit.
A victory for Usdaw
In a momentous decision, the Supreme Court overturned the earlier Court of Appeal ruling from July 2022, which had sided with Tesco. The court upheld the High Court’s earlier ruling from February 2022, and granted an injunction to prevent Tesco from using fire and rehire tactics to take away the retained pay benefit.
Implied term in employment contracts
The Supreme Court ruled that an implied term must be included in Tesco employees’ contracts, preventing the company from dismissing workers simply to remove retained pay. This implied term was necessary to protect the permanent nature of retained pay as promised in the original contract.
The court also determined that damages alone would not provide adequate compensation for the employees. The financial harm, along with the emotional and psychological distress caused by losing a permanent contractual benefit, could not be fully addressed by monetary damages. Therefore, an injunction was necessary to safeguard the workers' rights and prevent Tesco from terminating contracts to eliminate retained pay.
A successful outcome for workers’ rights
The ruling marks a key victory for Usdaw and its members. It highlights that courts will enforce the true intentions of contracts, and confirms that if damages are not an adequate remedy, an injunction can be granted.
Usdaw General Secretary Paddy Lillis said of the ruling: “We are thrilled with this outcome, which is a major win for our members and for the broader trade union movement. This case illustrates that fire and rehire tactics have no place in industrial relations, and we are proud to have fought for our members' rights.”
Retained pay: a key dispute
Retained pay was introduced as part of a collective agreement between Tesco and Usdaw, and was designed to keep employees during a period of significant company restructuring. Tesco had promised that this benefit would remain a permanent feature of the employees' contracts as a reward for their flexibility and loyalty.
However, Tesco’s attempt to phase out this benefit and replace it with a one-off lump sum payment led to the legal challenge, culminating in this landmark ruling. The case not only secures the rights of the employees involved, but also sets a broader precedent for protecting workers from the misuse of fire and rehire tactics.
Key takeaways for employers
This Supreme Court ruling offers important lessons for employers about the risks of implementing fire and rehire practices and the importance of sticking to contractual commitments.
Employers must respect permanent contractual benefits
Employers must ensure that any contractual benefits, particularly those promised as permanent features, are respected. Attempting to remove or alter these benefits without proper negotiation or justification can lead to legal challenges, which can lead to significant financial costs.
Avoid ‘fire and rehire’ tactics
This ruling sends a clear message that fire and rehire practices, which involve dismissing employees and offering re-employment under less favourable terms, are not acceptable. Such tactics may be seen as an attempt to undermine workers' rights, and could lead to significant legal and reputational consequences.
Ensure proper contractual terms
The case highlights the importance of having clear, transparent terms in employment contracts. Courts may imply terms into contracts to protect workers from unjust dismissal, especially if those terms are needed to uphold the original intent of the agreement.
If you need help drafting a contract of employment for your organisation,we can help at Neathouse Partners.
Engage in fair consultation
If restructuring or changes to contracts are necessary as a result of company changes, employers should engage in fair and meaningful consultation with employees and their representatives. Failure to do so can result in costly legal disputes and damage to employee relations.
The Tesco ruling highlights to employers that they must remain compliant with UK employment law. It's vital to uphold the terms of employment contracts, avoid unfair dismissal practices, and respect the rights of workers. Employers should also regularly review their practices to ensure they are in line with legislation.
