Background
The case centred on the issue of retained pay and whether Tesco could terminate the employment contracts for the specific purpose of removing the right to retained pay.
In 2007 Tesco made a number of restructuring decisions including closing certain of its distributions centres, expanding or restructuring others, and opening new sites. In order to incentivise employees to move location Tesco and its recognised trade union, the Union of Shop, Distributive and Allied Workers ("USDAW") made a collective agreement under which Tesco agreed to provide retained pay to employees who agreed to relocate.
This right to retained pay was then incorporated into employment contracts as an express term and expressed to "remain a permanent feature", subject to certain qualifications. The employment contracts also had a separate term which allowed Tesco to dismiss without cause, subject to notice.
In 2021 Tesco sought to remove the right to retained pay through agreement. Employees who did not consent would be dismissed and offered re-engagement on exactly the same terms, save that the right to retained pay would be removed.
USDAW and a number of Tesco employees applied to the High Court seeking:
- declarations as to the true meaning of the retained pay term; and
- an injunction to restrain Tesco from dismissing the employees in order to remove the retained pay term.
The High Court granted the injunction. The matter was appealed to the Court of Appeal which unanimously allowed Tesco's appeal. The claimants appealed to the Supreme Court.
Supreme Court
The Supreme Court unanimously allowed the appeal and restored the High Court's injunction. The Supreme Court held that the claimants' contracts of employment contained a term implied by fact with the outcome that Tesco's right to terminate could not be exercised for the purpose of depriving the employees of their right to retained pay.
The Supreme Court held that Tesco's right to terminate the employment contract by giving the requisite notice is qualified by a term implied by fact that Tesco's right to dismiss cannot be exercised for the purpose of depriving employees of the right to retained pay. The Court went on to say that it was inconceivable that the objective mutual intention of the parties was that Tesco should retain a unilateral right immediately to dismiss these employees for the purpose of removing the right to retained pay.
Turning to remedies the claimants sought an injunction restraining Tesco from acting in breach of the implied term by dismissing them. As such an injunction would amount to indirect specific performance of Tesco's obligation to continue to employ the employees on retained pay it would ordinarily not be granted in relation to an employment contract or where damages are an adequate remedy. However, there is an exception to this rule where there has been no breakdown of mutual trust and confidence – as was the case here. The Court went on to find that damages would be inadequate in this case due to an assessment of damages involving significant speculation, uncertainty, additional costs and possible expert evidence, and would exclude any non-pecuniary loss. The injunction was therefore reinstated.
Comment
Offering generous terms can provide a real incentive to employees, however employers need to be aware of the difficulties which can be faced when seeking to change the terms. Where benefits could be considered as permanent careful drafting needs to be considered to help ensure the employer has the required degree of flexibility. As set out in the judgment we have seen similar cases where employment contracts offer permanent health insurance benefits and they were held to contain an implied term to the effect that the employer is restrained from dismissing the employee and depriving them of such benefits.
With the Employment Rights Bill now published the government is curtailing the use of dismissal and re-engagement (also referred to as "fire and rehire"). For further information please see our Legal Update.
If you need any assistance with regard to changing terms and conditions please do not hesitate to get in touch.
