Tesco Stores Ltd -v- Union of Shop

Tesco Stores Ltd -v- Union of Shop, Distributive and Allied Workers and others

In a recent decision, the Supreme Court restored an injunction preventing Tesco from terminating certain employment contracts that included an entitlement to retained pay. Tesco had offered re-engagement on new terms without retained pay, under the practice commonly known as “fire and rehire”

The background to this was that in 2007 Tesco offered ‘retained pay’ to some warehouse staff to incentivise them to relocate, with this term then incorporated into relevant staff contracts. In 2021 Tesco decided that it wanted to end the retained pay arrangement and it gave notice to the affected staff that it intended to remove their entitlement to retained pay, in exchange for payment of a lump sum. Tesco’s stated that if affected staff did not agree, it would pursue the ‘fire and rehire’ approach.

A number of employees then refused the offer and the recognised Union (USDAW) sought an injunction to prevent the removal of the retained pay term, which after the previous injunction was overturned by the Court of Appeal, has then led to this latest decision by the Supreme Court

The Supreme Court’s decision:

• The retained pay term was deemed to be an incentive for the employees to undertake an otherwise unattractive relocation.
• It was deemed inconceivable that the objective mutual intention of the parties was that Tesco should retain a unilateral right to immediately dismiss these employees once they had relocated for the purpose of removing the right to retained pay. Essentially, the employees’ right to retained pay would be deprived of its value if Tesco was not prevented from unilaterally terminating the employment to defeat it. Therefore, a term was implied which limits Tesco’s right to terminate.
• The Supreme Court held that the correct interpretation of the term is that the right to receive retained pay would continue for as long as the particular employee was employed in the same role.

Comments:

In the wake of the Government’s proposals to make fire and rehire even more difficult to fairly pursue, this case is a reminder that employers wishing to vary agreed contractual terms should proceed extremely cautiously, particularly when the variation is to a term that had already been specifically agreed through a contractual amendment. The Supreme Court’s view was that a fundamental contractual right cannot be unilaterally varied, as otherwise the right had no value.

It should be noted that this was a relatively unusual set of facts, and it is very rare for a court to imply such a term that can restrict an employer’s ability to terminate the contract, and also to take the step of granting an injunction to that effect. One step that, with the benefit of hindsight, Tesco should have taken is that in introducing the retained pay, this should have been expressly time limited and/or conditional.