‘Plenty of lessons can be learned from unusual Tesco fire and rehire court case’

Last week, the Supreme Court reinstated an injunction preventing Tesco from dismissing and reengaging some of its employees on new terms of employment.

It was an unusual case, but there are lessons to be learnt from it. It also brings fresh scrutiny to the practice often called ‘fire and rehire’, which is likely to see tighter regulation from the new government.

The case was brought by the union Usdaw which has fought to preserve the historic benefit negotiated for a portion of Tesco’s employees back in 2007. The benefit, which offers extra pay, came about as an incentive for some employees to relocate as part of a restructuring programme and is described in their contracts as “permanent”.

To give meaning to the promise that the benefit would be permanent, the Supreme Court ruled that the employment contracts contained an implied term, which meant that the employer’s right to terminate the contracts could not be used to take away the employees’ right to the extra pay.

It is highly unusual for a UK court to grant an injunction preventing an employer from giving notice to terminate

While this is an important ruling, it is not one to send shockwaves through the retail industry. It is highly unusual for a UK court to grant an injunction preventing an employer from giving notice to terminate. However, these were highly unusual circumstances and hinged on the very specific contractual promise made by Tesco to some of its employees.

Dismissal and re-engagement remains a controversial practice and there have been repeated calls to legislate in the area.

The last government resisted those calls, instead introducing a statutory code of practice to provide guidance to employers on the steps they should take when seeking to change contractual terms and conditions of employment when facing the prospect of dismissal and re-engagement. The code of practice came into force in July 2024, but has been criticised by the new government as being “inadequate”.

In the run-up to the election, Labour pulled back from its pledge of an outright ban on fire and re-hire, recognising that there can be circumstances where businesses may have no alternative and need to restructure to remain viable and save jobs.

The government has, however, said that it will end what it calls the “scourge” of fire and rehire by reforming the law to provide effective remedies and replacing the statutory code of practice. We should have further details of the government’s proposals in a new bill which is expected to be published before October 12.

The government has said that it will end what it calls the “scourge” of fire and rehire by reforming the law

For employers, dismissal and re-engagement remains an option for the time being but it has generally always been a last resort.

It is worth remembering that the Tesco case is an unusual case relating to “extreme” facts.

While unions and employees facing dismissal and re-engagement may try to leverage the decision, it is unlikely that similar facts would arise in other cases. That said, it does show the importance of ensuring that contractual benefits are not expressed to be permanent or “guaranteed for life” as happened in this case.

Employers will certainly want to give careful consideration on how to communicate contractual changes and ensure flexibility when offering any entitlement – to make sure it cannot be construed as protected for life.

The use of clear and unambiguous language when drafting contractual entitlements is also key in making sure there are no unintended consequences.

In terms of negotiation, this case will strengthen the hands of employees and unions if an employer seeks to withdraw a permanent benefit. On the other hand, employers will need to check any contractual commitments they may have made in the past to ensure they can distinguish their own position from the facts in this case.