Tesco commenced a programme of reorganising its distribution centres, which included closures and relocations. Tesco wanted to retain its staff to ensure the distribution network continued to operate effectively, Tesco did not want to lose experienced employees by way of redundancy resulting from the reorganisation.
As a result, between 2007 and 2009, Tesco entered into collective bargaining negotiations with the recognised union, Union of Shop, Distributive and Allied Workers ("USDAW"), and an individual contractual entitlement to "Retained Pay" for existing employees was agreed, as an alternative to a lump sum redundancy payment and to act as an incentive for employees to relocate. It was a contractual reward package that was given a monetary value and the difference between that value and the value of the new terms and conditions was protected. This Retained Pay would increase each year in line with any annual pay rise.
Tesco referred to Retained Pay as "protection for life at [the] new Tesco contract site", and confirmed that the benefit would remain for as long as the affected individuals were employed in their current role. Tesco and USDAW had also published a statement in respect of the Lichfield site that stated "the retained pay is guaranteed for life" and the employer issued similar communications to the other sites.
In 2010, Tesco confirmed in the collective agreement that Retained Pay is a "permanent feature" of the individual's contractual entitlement and that it could only be changed on promotion, by mutual consent or if an employee requested change to working patterns.
In January 2021, Tesco formally announced its intention to remove the entitlement to Retained Pay and asked all affected employees to agree to its removal in return for an advance payment equal to 18 months of Retained Pay. In total 43 affected employees refused to agree. Tesco proposed to terminate individual contracts and offer re-engagement on different terms (without the Retained Pay entitlement) where affected employees would not voluntarily agree to the removal of the entitlement.
As a result of Tesco's proposals, USDAW and three of Tesco's employees (who were also union representatives) together brought a CPR Part-8 claim against the employer to seek a declaration that there was an implied term in the employment contract to prevent Tesco from providing contractual notice to employees for the purpose of removing or diminishing the right to Retained Pay. Injunctive relief was also sought, to prevent Tesco from giving notice to terminate the contracts for the purposes of removing the right to Retained Pay.
The relief sought was granted by the High Court. The Court considered that although "permanent" may mean for as long as the particular contract existed, that reading would ignore the intention of the parties. The Court concluded that it was the mutual intention of the parties that the entitlement to Retained Pay would be permanent for as long as each affected employee was employed in the same substantive role, save in the circumstances expressly articulated in the contracts.
Acknowledging the extreme facts of the case, the Court held that a term should be implied on the basis of business efficacy and/or obviousness. The term would still allow for a dismissal by Tesco for good cause, for example in a redundancy situation or for gross misconduct.
The Court also granted the injunction sought against Tesco that restrained it from directly or indirectly terminating the contract of affected employees for the purpose of removing or diminishing the entitlement to Retained Pay and from removing or changing the entitlement to Retained Pay other than in accordance with the express terms of the contract (i.e. when there is mutual consent, promotion or when the employee has requested a change in working patterns).
Tesco appealed to the Court of Appeal.
Court of Appeal
Tesco's appeal was allowed and the injunction was discharged. The Court of Appeal found that the High Court had erred in concluding 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. The Court of Appeal could also not accept that it was the mutual intention of the parties to limit the circumstances in which Tesco could bring the contracts to an end. There was no evidence that anyone addressed their mind to the possibility that in the future Tesco might seek to "fire and rehire". Although the Retained Pay provisions incorporated into the contracts specified no time limit, nor was there a "sunset clause", this was not considered to be sufficient to get round the lack of clarity in USDAW's case as to what both parties to the contract meant by "permanent". The Court of Appeal concluded that the express terms of the contracts should be interpreted in accordance with their natural and ordinary meaning – i.e. 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 did.
Turning to the injunction, the Court of Appeal held that even if the High Court had been right with regard to interpreting the relevant terms, this would not have justified an injunction. The Court of Appeal was not aware of any case in which a court has granted a final injunction to prevent a private sector employer from dismissing an employee for an indefinite period. The Court of Appeal went on to point out that it is obvious that an injunction cannot be granted unless it is clear beyond argument what the defendant can or cannot do. This cannot be said of the injunction granted by the High Court. The Court of Appeal stated that the remedy for a wrongful dismissal at common law is almost invariably financial.
It is perhaps unsurprising that the Court of Appeal has overturned the decision of the High Court. Although the facts of the case were recognised to be extreme, the Court of Appeal has confirmed that the stringent test of necessity for implying a term was not met. Further, even if it were, the appropriate remedy would be damages rather than an injunction.
This case serves as a useful reminder for employers to take great care when offering benefits to employees and to ensure that the language used allows for as much flexibility as possible.
The practice of "fire and rehire" is controversial and faces wide-spread criticism from the unions. Although the government does not plan to legislate against the practice, following the recent P & O events the government has announced that a new Statutory Code of Practice will be published on the use of "fire and rehire". The Code will set out how organisations must hold fair, transparent and meaningful consultations on proposed changes to employment terms. Tribunals and courts will have the power to apply an uplift of up to 25% of an employee's compensation where an employer unreasonably fails to follow the code. A draft of the code is expected to be published for consultation this summer.
Authored by Megan Dickenson, John Dorney and Charlotte Lloyd-Jones