Tesco Workers Win Fire and Rehire Case Following Supreme Court Ruling

In Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others, the Supreme Court favoured Tesco workers. The court confirmed that Tesco could not lawfully fire Tesco workers in order to rehire them on less pay.

In this article, we consider the background of the Tesco fire and rehire case and the Supreme Court findings. We also discuss the impact this legal judgment is likely to have and employee rights with respect to UK redundancy law.

If you believe your employer is attempting to fire and rehire you, contact Redmans Solicitors today. Our team of employment lawyers are specialists in UK redundancy law. We will be pleased to listen to your circumstances and advise you on your employee rights.

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The Background of the Tesco Fire and Rehire Case

Tesco Workers Were Offered Retained Pay to Relocate

The facts of the Tesco fire and rehire case date back to 2007, when Tesco Stores Ltd (the respondent) was closing some of its distribution centres. This caused a redundancy situation, as the respondent intended to “cease to carry on business in the place where an employee was so employed”. However, the respondent did not want to lose its experienced staff.

The respondent then entered into a collective agreement with the Union of Shop, Distributive and Allied Workers (the appellant). As a result, certain Tesco workers were offered “retained pay”. This was to incentivise Tesco workers to relocate to alternative distribution centres rather than accept redundancy pay.

For Tesco workers who accepted this offer, the retained pay became part of their wages (between 32 and 39%) and incorporated into their employment contracts. The Tesco workers believed the retained pay would continue and some obtained mortgages on this basis. However, in January 2021, the respondent sought to remove the entitlement to retained pay.

The respondent offered Tesco workers receiving retained pay lump sum payments to forego their continued right to retained pay. Tesco workers who did not accept this would be fired and rehired on different employment terms, without the right to retained pay.

Tesco Workers Receive Conflicting Rulings from High Court and Court of Appeal

The appellant, together with three Tesco workers, originally brought a claim against the respondent in the High Court regarding the Tesco dispute. The High Court ruled in favour of the appellant in February 2022. It granted an injunction preventing the respondent from carrying out its plan to fire and rehire employees unwilling to give up their retained pay.

The High Court stated that there was an implied term in the Tesco workers’ employment contracts. This prevented the respondent from serving notice to terminate Tesco workers’ employment contracts if the purpose of termination was to remove the right to retained pay.

The Tesco dispute continued as the respondent appealed against the High Court’s legal judgment. In July 2022, the Court of Appeal overturned the High Court’s ruling. The Court of Appeal held that the respondent was entitled to serve notice of termination in any circumstance. For each relevant Tesco worker, the right to retained pay would then end when their employment contract terminated.

The appellant appealed against the Court of Appeal’s legal judgment.

Supreme Court Findings in the Tesco Fire and Rehire Case

The Tesco fire and rehire case was heard by the Supreme Court in April 2024. The appellant argued that the retained pay was a permanent feature of the Tesco workers’ employment contracts and that removing it in this way would be unlawful. This argument was supported by various documents provided to Tesco workers in 2007 regarding the retained pay.

The respondent argued that provisions in the contract relating to retained pay and termination on notice functioned consistently with one another. The retained pay would be permanent but would still terminate (along with all other contractual provisions) when the contract itself was terminated.

The Supreme Court found in favour of the appellant and thus the Tesco workers. In its legal judgment, it agreed with the High Court that a “business efficacy test” should be applied. This would “preclude exercise of Tesco’s otherwise unqualified termination rights”.

Further, the legal judgment stated: “The proposed implied term is necessary to ensure that the employment contracts work as promised. Without it, the employees’ right to permanent retained pay would be capable of being immediately defeated.”

The Supreme Court added that the respondent’s interpretation of the two contractual provisions produced a “legally problematic and… potentially absurd consequence”. This would be that the respondent could theoretically have chosen to terminate all Tesco workers’ employment contracts immediately after their relocation to different distribution centres.

Potential Impact of Supreme Court Findings in Tesco Workers Case

Many have been surprised by the Supreme Court news regarding the Tesco fire and rehire case. Previously, the practice to fire and rehire workers, although seen as a last resort, was relatively common when seeking to change an employee’s employment contract if an employee unreasonably refused to consent to such changes.

The Supreme Court’s willingness to prevent such practices, as in the Tesco dispute, may cause employers to think twice about attempting them. Employers should take particular care with contractual wording, ensuring that this does not suggest a degree of permanence which was not intended.

This Supreme Court news is a definite indication that the legal system in the UK is starting to favour employees over employers. Proposals from the Labour Party in its New Deal for Working People strengthen this, with the government promising to extend the rights and protections afforded to UK workers.

There are concerns that a complete prevention of fire and rehire strategies will have an adverse effect on businesses. An inability to change employment contracts without an employee’s agreement may result in parties being tied into outdated terms and practices. This, in turn, may cause damage to the business as a whole.

Protecting Employees in the Future

If an employer is looking to fire and rehire an employee, it must have a potentially fair reason for doing so. Such reasons include redundancy (in which case the employer must follow a specific process), as well as issues with the employee’s conduct or capability. It must also comply with relevant notice periods, including those in the employee’s employment contract and/or those under UK employment law.

When seeking to fire and rehire 20 or more employees at a single establishment or within a 90-day period, an employer must collectively consult with those employees or a union on their behalf. Failure to do so is unlawful and may give rise to an Employment Tribunal claim.

If you are concerned that your employee rights have been breached, Redmans Solicitors would be glad to advise you. Contact our team of employment law specialists today to arrange an initial consultation. We will be able to explain your employee rights and advise on your options.

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