The Supreme Court has restored the injunction restraining dismissal and re-engagement on revised terms of Tesco employees. In Tesco Stores Ltd v USDAW (2024) UKSC, the Supreme Court has unanimously allowed the appeal against the 2022 Court of Appeal decision which overturned the High Court injunction preventing the supermarket from using fire and rehire to withdraw a collectively agreed contractual benefit that had been described as "a permanent feature".
The Supreme Court has now restored the injunction. This is an unusual case on the facts, but the Supreme Court has held that the employment contracts contained a term implied by fact which meant that the employer’s right to terminate could not be exercised to deprive the employees of their right to Retained Pay.
The Court held that it was inconceivable that both parties intended that Tesco should retain a unilateral right immediately to dismiss the employees so that it could remove the right to the Retained Pay. It also noted that Tesco's right to dismiss for any other reason other than to remove the right to Retained Pay was unaffected by this implied term and it took into account analogous case law which supported the existence of the implied term.
The Court went on to conclude that damages would be an inadequate remedy in this case as assessing damages would involve significant speculation and uncertainty. Whereas an injunction restraining Tesco from acting in breach of the implied term by dismissing the employees was an appropriate remedy here.
This is not a case that is likely to be able to be directly leveraged by unions or employees facing dismissal and re-engagement, because it hinges on the very specific contractual promise made by Tesco to some of its employees. However dismissal and re-engagement remains controversial and there have been repeated calls to legislate to prevent the practice. A new statutory Code of Practice on Dismissal and Re-Engagement came into force on 18 July 2024 clarifying the steps employers should take when seeking to change contractual terms and conditions of employment where there is a prospect of dismissal and re-engagement. While there is no direct claim for breach of the Code, tribunals must take it into account where relevant and may adjust compensation for certain tribunal claims by up to 25% including unfair dismissal awards.
The new Government has pledged to end "fire and rehire" by reforming the law to provide effective remedies and replacing the statutory Code of Practice. We should have further details in the forthcoming Employment Rights Bill expected to be published before 12 October 2024.
It is worth remembering that this is an unusual case relating to "extreme" facts and it is unlikely that similar facts would arise in other cases where dismissal and re-engagement are being contemplated. It does, however, show the importance of ensuring that contractual benefits are not expressed to be 'guaranteed for life' which happened in this case. Employers will certainly want to give careful consideration on how to communicate contractual changes and how to ensure flexibility when offering any entitlement to make sure it cannot be construed as protected for life, for example, setting a long-stop date for the entitlement or making it conditional. In terms of negotiation, it will strengthen the hand of employees and unions if the employer seeks to withdraw a "permanent" benefit and the employer will need to ensure that it can distinguish its own position from the facts in this case.
