Court of Appeal overturns injunction against termination and re-instatement

Decision means Tesco may proceed with a ‘fire and rehire’ process to withdraw benefits.

There have been a slew of recent cases highlighting the risks for employers when seeking to change terms and conditions of employment.

The decision nearly a year ago in Kostal UK Ltd v Dunkley and others, which considered when offers made to members of a trade union would amount to unlawful inducements, and therefore a breach under s.145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), has been considered in our articles ‘The risks of seeking to avoid collective bargaining’ and ‘Employers should exhaust collective bargaining procedures before making direct offers to workers’.

TULRCA is not the only means by which unions and employees who are party to collective agreements can seek to defeat an employer’s plans for changing terms and conditions.

A recent case has highlighted other legal routes that employees have pursued to prevent their employer from dismissing and re-engaging them.

Case: USDAW and others v Tesco Stores Ltd [2022]

In 2007 Tesco planned an expansion and restructure of its distribution centre network which involved opening new sites and closing others. To retain experienced staff, Tesco incentivised those workers at a site it was closing to move to two other sites by offering ‘Retained Pay’ which took the form of additional payments on top of usual wages. If staff refused this offer, the alternative was to be dismissed on the grounds of redundancy. This offer was more generous than redundancy pay and was taken up by a number of the affected employees.

In 2010 Tesco recognised USDAW via a collective agreement which acknowledged USDAW as the sole representative and negotiating trade union for its staff below the level of Team Manager at ‘new contract sites’, which included those sites where staff had agreed to move and work in exchange for Retained Pay.

The collective agreement referred to Retained Pay, noting that it would remain a feature of the relevant contracts subject to the following rules:

• it could only be changed by mutual consent
• it would cease on promotion to a new role
• it would remain as long as the employee was employed in their current role

Some time later, Tesco wanted to end Retained Pay and it gave notice to affected staff that it wanted to agree to remove the Retained Pay clause from their contracts in exchange for a payment equal to 18 months’ of Retained Pay. If the employee did not agree, Tesco intended to terminate the contract and re-engage on different terms.

The employees brought a claim to the High Court seeking to stop Tesco from firing and rehiring them to drop the Retained Pay clause. The employees argued, amongst other things, that there were implied terms in the employment contract that prevented Tesco doing this.

The employees pointed to documents and statements made before the collective agreement was signed as evidence that there were implied terms in the collective agreement that Tesco would not fire and rehire staff for the purposes of removing Retained Pay provisions. One of the documents referred to was a Q&A to staff about Retained Pay, which stated ‘…your new employment contract will be protected by […] ‘Retained Pay’ which remains for as long as you are employed by Tesco in your current role. Your Retained Pay cannot be negotiated away [by Tesco][…]’.

The employees also pointed to a supposed joint statement which claimed that Retained Pay would be ‘guaranteed for life’.

The High Court found that the Retained Pay clause, together with the documents referred to above, allowed the Court to read into the contract that Tesco’s right to terminate the contract on notice could not be exercised for the purpose of removing or diminishing the right of the employee to Retained Pay.

The High Court also granted an injunction stopping Tesco from doing just that, on the basis that the other remedies available to the employees (claims for wrongful dismissal) were unsuitable because financial compensation for breach of this implied term would be insufficient.

Tesco appealed the decision, arguing the High Court had erred in the construction of the terms implied into the employment contract, specifically that it was wrong to imply that Tesco’s rights to terminate the contract could be restricted in this way. Amongst other points, Tesco argued that the interpretation of the clauses the Court used were not precise or clear enough to allow them to stand.

The Court of Appeal overturned the decision of the High Court, noting that the evidence the High Court had used to deduce the implied terms did not show mutuality. It is long-established in case law that to imply the kinds of terms the High Court had into the contract (which restricted one party’s ability to act) there had to be clear evidence that both parties agreed to this. The Court of Appeal highlighted that the joint statement by the parties in the pre-agreement announcement was made three years before the collective agreement was entered into and the statement was not cross-referenced in the agreement.

The Court of Appeal agreed with arguments that the terms implied lacked clarity, particularly over what was meant by the ‘permanency’ of the Retained Pay clause. For example, it was accepted by the employees that the Retained Pay being ‘guaranteed for life’ would not stop Tesco from dismissing an employee on notice, for example, for theft or permanent incapacity. The Court of Appeal also considered whether it was right to imply permanency of the term in the contract if, for example, the employee wished to keep working into their 90s based on this implied term and whether it was right that Tesco would be in breach of contract if they refused to allow it. The Court of Appeal noted that had the clause been implied to say ‘provided the site remains open, Retained Pay will continue until you reach the age of 65’ then it would have sufficient clarity to operate.

In addition, the Court of Appeal noted that the effect of the clause, as implied by the High Court, did not make sense because the implied terms would mean Tesco would be liable for breach of contract if it gave notice and offered to re-engage in the same role, but not if it offered the employee a different role or gave notice and made no offer at all.

Finally, the Court of Appeal concluded that an injunction was not the appropriate relief, as the proper relief for breach of contract was damages.

Comment

When the High Court issued the injunction it was seen a potential counter to the practice of fire and rehire, which as a practice gained some notoriety after the P&O ferries affair. Though legal commentators recognised the decision was highly fact-specific, it did suggest that employers needed to take care when negotiating collective agreements to not agree terms that restricted their ability to negotiate room to change benefits granted to employees. This, it was thought, would mean employers avoided similar claims to those faced by Tesco.

In March 2022 the government announced its intention to issue a new Statutory Code of Practice which the government stated would prevent unscrupulous employers using fire and rehire tactics.  However, the Code has not yet appeared, and even when or if it does, the Code is not expected to ban the practice of fire and rehire, rather it will seek to reinforce and clarify existing requirements on employers to hold fair, transparent and meaningful consultations on proposed changes to employment terms. As with other statutory codes, the courts and tribunals will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply with the Code where it applies.    

The decision of the Court of Appeal has decided the issue in favour of the employer for the time being. Whilst this decision may be subject to appeal, it suggests that we may not see an increase in trade unions seeking an injunction to halt a dismissal and re-engagement process. However, employers should be aware of this possible approach which could increase the legal risks and costs entailed in a dismissal and re-engagement process.