Earlier this year the High Court granted an injunction to prevent Tesco from dismissing employees, then offering to re-engage on new terms employees in order to remove a permanent contractual entitlement to enhanced pay. This is a very unusual course of action and last month the Court of Appeal overturned the injunction.
Dismissal and re-engagement (known as ‘fire and rehire’),is sometimes used when making changes to terms and conditions of employment. Employees who refuse to agree to proposed new terms are dismissed and an offer is made to re-engage on the new terms.
Tesco recognises USDAW for collective bargaining, meaning that any pay agreements flow into individual contracts of employment.
The two parties had previously agreed arrangements for ‘Retained Pay’, which became an individual contractual entitlement. The contractual reward package was given a monetary value and the difference between that value and the value of new terms and conditions was protected. In its communications to staff, Tesco made it clear that individual entitlement to Retained Pay would remain for as long as they were employed in their current role, that it could not be negotiated away, and that it would increase each year in line with any general pay rise. In 2010 a collective agreement stated that Retained Pay would be a ‘permanent feature’ of an individual’s contractual entitlement, and could only be changed through mutual consent, on promotion, or in the case of an employee-requested change to working patterns.
In January 2021, Tesco formally announced its intention to remove Retained Pay. It offered a lump sum payment in return for giving up the entitlement, failing which employees would be dismissed and offered new terms excluding Retained Pay. USDAW argued that affected employees’ contracts were subject to an implied term preventing Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the right to Retained Pay and sought an injunction preventing Tesco from terminating the affected contracts.
The High Court granted the injunction finding that in this context, the word ‘permanent’ in the contractual entitlement to Retained Pay meant ‘for as long as the relevant employee is employed by Tesco in the same substantive role’.
Tesco appealed successfully to the Court of Appeal. The Court of Appeal found that the High Court was mistaken in finding, based on pre-contractual statements, that the mutual intention of Tesco and USDAW was that the contracts would continue for life, or until normal retirement age, or until the closure of the site concerned, or that the circumstances in which Tesco could bring the contracts to an end should be limited. There was no evidence that anyone addressed their mind to the possibility of Tesco seeking to ‘fire and rehire’. Although the Retained Pay provisions incorporated into the contracts specified no time limit, nor was there a ‘sunset clause’, that was not enough to get round the lack of clarity in USDAW’s case as to what both parties to the contract meant by ‘permanent’. It said that the express terms of the contracts should therefore be interpreted in accordance with their natural and ordinary meaning, i.e., that Tesco would have the right to give notice in the ordinary way, and that the entitlement to Retained Pay would only last as long as the particular contract.
This decision is a return to the accepted processes which is reassuring for employers. However, injunctions are possible in similar scenarios and there could still be financial implications attached to ‘fire and rehire’ practices. The other risk is unfair dismissal claims in respect of employees with unfair dismissal rights.
The Acas guidance published in November 2021 also gives employers tips on how to work with staff and unions when negotiating changes to terms of employment and the Government is currently developing a new Code of practice on fire and rehire.
Always consider how to best communicate contractual changes and in particular how to build in flexibility when offering any entitlement which could be construed as ‘permanent’. Use clear and unambiguous language when drafting contractual entitlement.
If you’re an employer with HR queries and problems, get in touch!
Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.
Copyright © 2022 all rights reserved. You may copy or distribute this blog as long as this copyright notice and full information about contacting the author are attached. The author is Kate Russell of Russell HR Consulting Ltd.
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