Employment law experts have commented on a UK Supreme Court ruling that said Tesco cannot fire and rehire delivery workers who receive “deferred pay”.
‘Potentially disastrous’
Katie Maguire, Devonshire
“This has potentially disastrous consequences for employers who have relied on this practice to implement changes to their employees’ terms and conditions of employment. Prior to this judgment, any employment lawyer would have advised a client who wanted to implement changes to a contract but could not obtain consent from affected employees to terminate their existing contract and offer them re-employment on the new terms – also known as firing and re-employment.”
“The Supreme Court acting in this way and preventing employers from firing and re-hiring employees shows that the courts are prepared to step in and consider the parties’ intentions when entering into a contract. This points the way in which case law is moving and may effectively prevent the practice of firing and re-hiring in the future. This serves as an important warning to employers and is very much indicative of the pendulum of rights in the UK swinging in favour of employees over employers. New legislation and proposals from the Labour Party will be announced shortly which will expand workers’ rights and protections.”
“A dramatic departure from the usual position”
Colin Godfrey, Taylor Wessing
“Importantly, this case did not consider the practice itself, but whether it was lawful to change contracts to remove employees’ entitlement to increased pay, known as ‘retained pay’. When the scheme was introduced it was described as a ‘permanent feature’ of employees’ contracts, and Usdaw argued that this would prevent Tesco from sacking employees and then re-employing them and removing the scheme from their contracts.”
“In an unusual move that surprised many, the High Court found that the permanent character of the reference to pay retention created an implied term that Tesco would not dismiss anyone with a view to depriving them of the right to pay retention, and issued an injunction preventing Tesco from dismissing the affected employees.”
“The Court of Appeal overturned the decision, finding that no such implied right existed, that Tesco had the same right as any other employer to terminate the contract with notice and that it was improper to issue an injunction preventing the dismissals. In a landmark decision, the Supreme Court overturned the decision of the Court of Appeal and reinstated the injunction issued by the High Court.”
“In its judgment, the Supreme Court concluded that there was an implied term in the employees’ contracts and that Tesco’s termination rights could not be exercised with the purpose of depriving employees of their right to retention benefits. This marks a significant departure from the normal position, where an employer can terminate a contract by giving notice in accordance with the terms of the contract if changes to the contract cannot be agreed.”
“This judgment is likely to have wide-ranging implications for UK employers seeking to vary employees’ contractual rights where those rights are expressly stated to be permanent. It highlights how employers must be careful when agreeing contractual terms and that even in negotiations, vague wording about the intended permanence of the terms can prevent variations or even hinder the ability to fire and re-employ on new terms.”
“This decision brings greater scrutiny into dismissals and re-employment, and proposed reforms under a Labour government would see dismissals and re-employment become even more tightly regulated. Employers would be wise to tread particularly carefully when they need to implement reforms.”
“Firing and rehiring remains a useful tool.”
James Townsend, Payne Hicks Beach
“Although Tesco has been subject to a restraining order in this case, dismissal and re-employment, carried out fairly and in accordance with legal requirements, remains a useful tool for employers seeking to modify terms and conditions of employment where an employee has unreasonably refused to accept such a change.”
“Should the government enact laws regarding dismissal and re-employment?”
Henry Clinton Davis, Arnold and Porter
“There has been much noise about employers seeking to vary the terms and conditions of employees’ employment through firing and re-employment. The facts of this case were somewhat unique as the salary supplement had been expressly provided for during the employee’s period of employment. The Court felt that it would be ‘ignoring common sense’ if the company could cancel the benefit by firing the employee and offering him employment on new terms.
“The new Labour government is seeking to ban the practice of firing and re-hiring except in very exceptional circumstances. But does the government really need to go that far? In reality, firing and re-hiring has almost always been seen as a last resort, as highlighted in the new code of practice which only came into effect on 18 July this year.”
“No matter how much consultation there is, there are times when perfectly reasonable proposals to change terms are rejected and the only way to implement the proposed changes is to fire and re-employ. Otherwise, employers find themselves locked into old and outdated terms and practices which, if continued, harm their business and ultimately the employment prospects of the employees affected.”
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