Supreme Court Restores Injunction Against Tesco

At a Glance

Key Highlights:

• February 2022: High Court grants an injunction preventing Tesco from using “fire and re-hire” to remove a permanent entitlement to enhanced pay.
• July 2022: Court of Appeal overturns the injunction.
• September 2024: Supreme Court unanimously restores the High Court injunction, finding an implied term protecting employees’ permanent Retained Pay.
• Employment contracts contained a term implied by fact: Tesco’s right to terminate could not be exercised to deprive employees of enhanced pay.

Facts

Tesco recognised USDAW for collective bargaining. Between 2007 and 2009, they agreed individual contractual entitlements to “Retained Pay” as an alternative to a lump-sum redundancy payment and as an incentive for staff relocation. Communications made clear that Retained Pay would:

• Remain for as long as employees were in the same role.
• Not be negotiable away.
• Increase each year with general pay rises.

A 2010 collective agreement described Retained Pay as a “permanent feature” of contractual entitlement, changeable only by mutual consent, promotion or employee-requested pattern changes.

In January 2021, Tesco announced it would remove Retained Pay, offering a lump-sum buy-out. Employees who refused would be dismissed and re-engaged on new terms excluding Retained Pay (fire and rehire). USDAW sought:

• A declaration that an implied term prevented Tesco terminating contracts to remove or diminish Retained Pay.
• An injunction to stop Tesco from dismissing and re-engaging under new terms.

Judgment of the Supreme Court

Tesco argued that its unrestricted right to terminate on notice meant Retained Pay remained subject to dismissal and rehire. The Supreme Court rejected this, finding that the promise Retained Pay would be a permanent feature could not be given effect if Tesco could remove it unilaterally by dismissal.

Applying the business efficacy test, the Court held it was necessary to imply a term preventing Tesco from terminating contracts for the purpose of depriving employees of Retained Pay. The mutual intention was clear: Retained Pay was an inducement for relocation and should not be subject to unilateral removal.

Drawing on analogous cases involving permanent health insurance (PHI), the Court confirmed that an employer’s power to dismiss may be qualified where termination would defeat a promised permanent benefit.

On remedies, the Supreme Court agreed that an injunction requiring Tesco to maintain Retained Pay was appropriate. Specific performance of employment contracts is rare but justified here due to no breakdown of trust and the inadequacy of damages.

Commentary

This rare decision underscores the risks employers face when offering long-term incentives. If such benefits are not time-limited, an implied term may lock them in permanently. Employers planning significant contractual changes or “fire and rehire” should consider:

• Time-limiting incentives to avoid implied permanence.
• Clearly drafting termination clauses to preserve flexibility.
• Engaging unions in negotiations to manage expectations.

The ruling also comes amid proposed reforms to the law on fire and rehire by the incoming government, making it essential for employers to review their strategies now.

Related Internal Links

Read more: Supreme Court restores injunction to prevent Tesco using fire and rehire

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Article by DLA Piper – Rachel Chapman of Lexology

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