In the case of Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers (USDAW) and others, the Supreme Court addressed the legality of Tesco's attempt to dismiss and re-engage employees to remove their entitlement to "retained pay." This practice, commonly referred to as "fire and rehire," was challenged by USDAW, leading to a series of legal battles culminating in the Supreme Court's decision.
High Court's initial decision
The High Court initially granted an injunction preventing Tesco from dismissing and re-engaging the employees. The court found that the term "permanent" in the retained pay agreement implied that the employees were entitled to this pay for as long as they remained in their current roles. The High Court held that an implied term existed in the contracts, preventing Tesco from terminating the contracts to remove the retained pay.
Court of Appeal's overturning
The Court of Appeal overturned the High Court's decision, arguing that the term "permanent" did not preclude Tesco from exercising its contractual right to terminate the employment contracts. The Court of Appeal emphasized that the express terms of the contract allowed for termination on notice and that the retained pay was only guaranteed for the duration of the existing contract.
Supreme Court's reinstatement of the injunction
The Supreme Court reinstated the High Court's injunction, holding that the Court of Appeal was wrong to overturn it. The Supreme Court found that the term "permanent" in the retained pay agreement conveyed that the right to retained pay was not time-limited and would continue as long as the employees remained in their current roles. The Court emphasized that any other interpretation would undermine the express promise made by Tesco.
Key points from the Supreme Court's decision
Interpretation of "Permanent": The Supreme Court held that the word "permanent" in the retained pay term meant that the entitlement was not subject to removal by collective bargaining or unilateral action by Tesco. It was intended to be a lasting feature of the employees' contracts.
Implied term: The Court found it necessary to imply a term into the contracts to prevent Tesco from dismissing employees for the purpose of removing their retained pay. This was essential to give effect to the mutual intention of the parties and to preserve the employees' rights.
Injunction justification: The Supreme Court justified the injunction by stating that damages would be an inadequate remedy for the employees. The injunction was necessary to prevent Tesco from acting contrary to the implied term and to protect the employees' contractual rights.
Additional considerations
Business efficacy test: The Supreme Court applied the business efficacy test to imply the term, ensuring that the contract would not be rendered ineffective or meaningless by allowing Tesco to terminate it to remove retained pay.
Impact on employers: This decision highlights the challenges employers may face when attempting to change terms and conditions of employment through dismissal and re-engagement. Employers must carefully consider any promises made regarding the permanence of contractual terms.
Future legislation: The government plans to introduce legislative changes to restrict the use of "fire and rehire" practices, which may further impact employers' ability to unilaterally change employment terms.
This case underscores the importance of clear contractual terms and the potential legal implications of attempting to alter those terms through dismissal and re-engagement.
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