Posted: 17/09/2024
A long-running dispute between major supermarket chain Tesco and a trade union has ended in a Supreme Court decision in favour of the union (and workers).
The Union of Shop, Distributive and Allied Workers (USDAW) is a name familiar to those in the retail sector. The union was recognised by Tesco for the purposes of collective bargaining.
The facts of this case date back to 2007, when Tesco undertook a reorganisation of its distribution centres. This involved closing some sites, opening new ones, and expanding others. To incentivise staff to relocate, USDAW and Tesco negotiated ‘Retained Pay’ as an alternative to a lump sum redundancy payment. The contractual reward package was given a monetary value, and the difference between that value and the value of the new terms and conditions was protected. Crucially, in its communications with staff, Tesco stated that Retained Pay ‘remains for as long as you are employed by Tesco in your current role’ and was ‘guaranteed for life’.
In January 2021, Tesco made the decision to remove Retained Pay. Affected employees were offered an advance payment equivalent to 18 months’ Retained Pay, after which the benefit would be withdrawn. A number of employees refused to consent to the removal of Retained Pay, leading Tesco to threaten dismissal and re-engagement (also known as ‘fire and rehire’) on terms that did not include Retained Pay.
In March 2021, USDAW applied to the High Court for a declaration that the affected employees’ contracts were subject to an implied term, preventing Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the employees’ right to Retained Pay. In addition, USDAW sought an injunction preventing Tesco from terminating the employees’ contracts of employment. The High Court agreed with USDAW, making a declaration and granting the employees injunctive relief.
Tesco successfully appealed the decision to the Court of Appeal, and the case eventually came before the Supreme Court.
Before the Supreme Court, the parties agreed that Retained Pay had been a contractual benefit. Key to the case were certain pre-contractual documents, which said that Retained Pay was ‘protection for life at new Tesco contract site’, ‘… remains for as long as you are employed by Tesco in your current role. Your retained pay cannot be negotiated away by Tesco, USDAW or USDAW Shop Stewards’ and ‘the retained pay is guaranteed for life’.
A 2010 collective agreement also stated that Retained Pay would be a ‘permanent feature’ of an individual’s contractual entitlement, and could only be changed through mutual consent, on promotion, or in the case of an employee-requested change to working patterns. The Supreme Court found that it could not have been the intention of the parties for Tesco to retain a unilateral right to terminate the employees’ contracts in order to bring Retained Pay to an end.
It was therefore necessary to imply a term precluding exercise of Tesco’s otherwise unqualified termination rights to dismiss the affected employees in order to deny them the very benefit they were promised would be paid permanently. This implied term would not, however, prevent Tesco from terminating the contracts for a purpose unconnected with Retained Pay.
Dismissing Tesco’s argument that, while the word ‘permanent’ meant that Retained Pay could not be removed through collective bargaining, it did not amount to a guarantee about how long the contract of employment itself would last, the Supreme Court overturned the Court of Appeal’s findings and upheld USDAW’s appeal.
Requiring a party to do something (specific performance) is rare in the context of employment contracts. In this case, damages for the breach would not be an adequate remedy and there was no breach of the implied term of mutual trust and confidence. In those limited circumstances, the Supreme Court was prepared to reinstate the injunction granted by the High Court.
Although in practice this decision only impacted approximately 50 employees, defending the claims will have cost Tesco many thousands of pounds in legal fees, not to mention the damage to its reputation. The facts of this case may be specific; however, it provides a cautionary tale for employers and makes clear that fire and rehire (which is not without its own controversies) will not necessarily provide an easy fix for an employer wishing to remove valuable contractual benefits.
The new Labour government has confirmed its intention to crack down on fire and rehire and, although it is not clear how far its proposals will go or how they will work, the coming months are likely to see a further restriction on an employer’s right to change terms and conditions via this practice.
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