Tesco recently lost a significant “fire and rehire” case in the UK Supreme Court, highlighting the problems of attempting to reduce employee pay through dismissal and rehiring practices. The case centred around Tesco’s attempts to remove “retained pay” from the contracts of some of its distribution staff.
What Happened?
Back in 2007, Tesco closed a number of distribution centres and wanted to encourage employees to relocate to new sites. To sweeten the deal, Tesco offered “retained pay,” a top-up payment that would compensate relocated workers for agreeing to the move. The payments were a permanent feature of the workers’ employment contracts, meaning they would receive these additional funds indefinitely.
In 2021, Tesco sought to remove the retained pay, telling workers that if they didn’t agree to give up the top-up, they would be dismissed and rehired on contracts with lower pay. The workers, backed by the union Usdaw, resisted, and the dispute went to the courts.
After winning in the Court of Appeal, Tesco’s employees took their case to the Supreme Court, which ultimately ruled in their favour. The Supreme Court found that the offer of retained pay was a permanent part of the employment contract and could not be removed at Tesco’s convenience.
Why Did Tesco Lose?
The Supreme Court’s ruling was based on the intention behind the offer of retained pay. The court found that the payments were intended as a permanent incentive to encourage employees to relocate and make significant changes in their lives. By attempting to remove these payments through dismissal and rehiring, Tesco violated the spirit of the agreement made with its workers in 2007.
Justices Lord Burrows and Lady Simler stated that it was “inconceivable” that Tesco would retain a unilateral right to terminate the contracts and remove retained pay whenever it suited the company’s business purposes. The ruling emphasised that Tesco should have negotiated an end date for retained pay back in 2007, but because it did not, the payment remained a protected contractual right.
What Does This Mean for Employees?
This case reinforces the protection of contractual rights and sends a strong message about the legality of “fire and rehire” practices. As the UK Government prepares to introduce new employment rights legislation to further address exploitative employment practices, this ruling will likely influence future cases involving attempts to change contractual terms through dismissal and rehiring.
Need Help with Employment Issues?
If you’ve experienced a similar situation or have concerns about employment contracts, contact Austen Jones Solicitors today. We provide a personal approach to legal matters, ensuring your rights are protected every step of the way.