Employee Contract Changes and Tesco High Court Decision Overturned

Employee Contract Changes and Tesco High Court Decision Overturned

A few months ago, in March's article "Restructuring - Avoiding the pitfalls of 'fire and rehire' strategy", we wrote about the High Court decision affecting Tesco. The High Court granted an injunction in February 2022 restraining Tesco from terminating and re-engaging those employees who did not agree to a variation to their contracts of employment.

The High Court found that 'Retained Pay' in the contracts of employment was a term intended to be a permanent part of the employees' contract, essentially for as long as the relevant employee was to be employed by Tesco in their substantive role.

The decision of the High Court was overturned by the Court of Appeal on 9 June 2022.

The Court of Appeal found that whilst the Retained Pay was stated to be 'permanent', it was only permanent for as long as that particular contract was in place. Tesco had sought to fire and rehire employees who did not agree to their Retained Pay being stopped so that they could issue a new contract of employment which no longer included Retained Pay.

The term 'permanent' relating to the Retained Pay terms did not mean the intention of the parties was that the contracts of employment would continue for life, or until normal retirement age, or until the closure of the site concerned; nor could such intention be implied into the contract.

If Tesco terminated the contract and did not make a new offer of employment, the Retained Pay would end and there would be no breach of contract. For this reason, the Court of Appeal also found that if having terminated the contract, a different role was offered, there would be no entitlement to Retained Pay as the employee was no longer in the same role. However, if an employee was re-engaged in the same role, it would follow that the re-engagement would be on the same terms, including Retained Pay.

The Union of Shop Distributive and Allied Workers (USDAW) has confirmed that they intend to take this case to the Supreme Court.

In our previous article, we highlighted the importance of giving careful consideration to making contractual changes and ensuring 'fire and rehire' is the last resort.
This decision does not give employers license to fire and re-hire with impunity. Employers must still take care to ensure no other term of the contract of employment is breached, a reasonable procedure is followed prior to reaching the decision to dismiss, and that contractual notice is given.

It is also worthy of note that the UK Government has announced that a new statutory code will be introduced to detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to contracts of employment. The code is likely to be used by Tribunals when deciding relevant cases.

As soon as this code is introduced, or there are further changes stemming from USDAW's appeal to the Supreme Court, we will provide a further update.

At GS Verde Law, our employment law solicitors can assist you through the process of hiring and dismissing employees fairly and accurately.
If you have any queries about this, or another other employment law or HR matter, please do not hesitate to contact our Employment and HR Team here.