Tesco’s Fire and Rehire: A Landmark Ruling for Employees

Tesco’s Use of Fire and Rehire Tactics – What Happened?  

Over the last few years, Tesco, one of the largest supermarket chains, has found itself at the centre of a Supreme Court case over its ‘fire and rehire’ tactics. 

In 2021, Tesco sought to amend the contracts of some of its employees at its distribution centres. In 2007, these employees had been granted a contractual ‘retained pay’ benefit which had been introduced as a result of workers agreeing to major changes in their working conditions. This included agreeing to relocate to another distribution centre or accepting new roles. Crucially, the benefit was defined as a permanent feature of the employment contract which could only be removed/and or amended in limited circumstances.  

As a result of Tesco’s desire to cut costs, in 2021, they attempted to bring an end to the ‘retained pay’ scheme through ‘fire and re-hire’ tactics. Tesco informed their employees that the retained pay would either be removed from their contracts in return for a lump sum pay out, or they would be dismissed and then re-hired on new terms which didn’t include the financial benefit.   

The Landmark Legal Decision  

Unsurprisingly, Tesco’s actions were met with resistance from employees and trade unions. In 2021, the Union of Shop, Distribute and Allied Workers (USDAW) took legal action against Tesco for their fire and re-hire tactics, arguing that the retained pay benefit should not be removed and that it was intended to be a permanent part of the employees’ contracts. The Union sought an injunction preventing Tesco from adopting these tactics. 

Last Thursday, the Supreme Court granted a permanent injunction preventing Tesco from dismissing their employees and re-hiring them on contracts without the ‘retained benefit’. Lord Reed held that the wording of the retained benefit clause meant that it would remain a permanent feature of the individual employee’s contract.  Unanimously, the court held that although Tesco had a right to terminate the contracts of their employees, it was an implied term of the employment contracts that this right was a qualified one. The court ruled that such right should not be exercised to allow Tesco to avoid having to pay the retained pay.  

The Impact on Employers and Employees  

For employees, this case serves as a welcome decision and sets a precedent for workers’ ability to successfully challenge fire and rehire tactics in the future.  

For employers, this case demonstrates how crucial it is to effectively balance workers’ rights with the financial interests of the company. Moving forward, employers should be aware of exactly how contractual benefits are being drafted into their employment contracts. In particular, they should be mindful as to whether they offer any flexibility to account for future economic hardships the company might face. 

Significantly, on 18 July 2024, a new statutory code of practice for fire and re-hire tactics came into force in England, Scotland and Wales. The code aims to regulate how employers how handle dismissal and re-engagement practices. If you are an employer and are considering adopting a fire and rehire approach, please ensure you seek appropriate legal advice before doing so to ensure you are complying with the guidance set out in the code.   

How can Ellis Jones help? 

As above, it is important that employees and employers seek appropriate legal advice when it comes to fire and rehire practices. If you require assistance in relation to this or  any other employment law or HR matter, please do contact us on 01202 525333 or by email at employment@ellisjones.co.uk, one of our team would be very happy to assist you. 

We also run a monthly, free HR forum in conjunction with Rubicon People, it is free to join and an invaluable way to stay up to date with changes to employment law and HR. If you would like to attend, please contact employment@ellisjones.co.uk.