The UK Supreme Court unanimously ruled Tesco could not fire and rehire workers in distribution who received’retained wages’. It reinstated an High Court injunction that prevented it from doing this.
Tesco claimed that the term “retained wages” in the employment contract of the workers meant that the right to retain pay would be “permanent”, for the duration, and was subject to Tesco’s right to dismiss the worker on notice.
The Supreme Court in Tesco Stores V Usdaw rejected this argument because it did not give substance to the promise that the right to retained pay was “permanent”.
The Supreme Court said that the correct interpretation is that the retained-pay term continues to apply as long as the employee continues to perform the same job, but only if certain conditions are met.
The right would be void if Tesco could terminate employment unilaterally to undermine it.
In its judgement, The Supreme Court held that Tesco was prohibited by an implied clause from exercising the contractual rights to dismiss claimants with notice in order to remove or diminish their right to permanent retained pay.
Background: Usdaw and Tesco
Tesco, in 2007, offered permanent “retained-pay” enhancements to employees willing to relocate to new distribution centres in Daventry or Lichfield as part of a collective agreement reached with the Usdaw.
We were disappointed by the Court of Appeal’s decision but felt that we needed to pursue this case. We are delighted with this result, which is a victory for the entire trade union movement” – Paddy Lillis Usdaw
The retailer wanted to terminate this contract in 2021 for a lump-sum payment. Workers who refused the change were “fired and hired again” — their contracts would be terminated, and they’d get new agreements with no retained pay.
The High Court in February 2022 ruled in favour of the workers and stated that the benefit is “guaranteed forever” as well as issued an injunction to prevent Tesco from sending notices of termination.
In July 2022, the Court of Appeal reversed this following an appeal from Tesco. The Court of Appeal found that references to retained pay in collective agreements meant that it was guaranteed only for the duration of the contract.
The Supreme Court of the United States granted permission for the shop workers’ union to appeal in December 2022. The case was heard on April 20, 2024.
Usdaw vs Tesco – reaction
Paddy Lillis said, “Usdaw is determined to stand behind its members who receive this valuable benefit, which was a major component of their salary. We recognized that this payment was made because they were willing to work for the company, and we agreed that it would be a permanent benefit.
“When we said permanent we meant exactly that. Tesco’s threat to fire these employees and rehire them in order to take away this benefit was appalling. We felt that these tactics had no place in industrial relationships, and we took action to protect the individuals concerned.
We were disappointed by the Court of Appeal’s decision, but we always felt that this case had to be seen through. We are delighted with this result, which is a victory for the entire trade union movement.”
Neil Todd, partner at Thompsons Solicitors in the union law group, said, “This is an amazing judgment for Usdaw, and the members involved.” The retained pay recipients were told unequivocally they would receive a permanent benefit as part of their employment contract, if they agreed that they would remain with the company and support it at times when it was most needed.
Tesco’s spokesperson confirmed that it accepts the Supreme Court’s ruling and added that its objective has always included ensuring fairness for all distribution centre employees.
The statement said: “Today’s judgement relates to a contract dispute brought by a very limited number of colleagues within our UK distribution network, who receive an additional pay.” This supplement was offered years ago to encourage certain colleagues to stay with the company. Today, most of our colleagues in distribution do not receive it.
“We decided to phase out the program in 2021. At that time, we made a competitive proposal to the affected colleagues. Many of them accepted it. “Our aim has always to be constructively engaged with Usdaw, and the few colleagues affected.”
Employers should be aware of the implications
Patrick Howarth of Foot Anstey said that the Usdaw case vs Tesco has been incorrectly compared to a number recent fire and rehire cases, when the facts in this case go beyond these.
“Retailers, and other employers, should not worry that their rights to amend the terms of employee contracts have been taken away. “It hasn’t,” said he. The most important thing for HR and employment professionals to take away from this case is the fact that communication between unions, and employers during consultation was deemed relevant in interpreting what certain contractual terms meant.
The judgment of today is a reminder to all that it’s important to carefully draft any communication. The ruling today will highlight a number tensions in the debate surrounding the firing and rehiring of employees, but its impact on the employment landscape is still to be determined.
Matthew Howse of Morgan Lewis & Bockius said, “This landmark ruling puts substantial limitations on ‘fire-and-rehire practices’, especially when benefits are described as ‘permanent.’ This decision highlights the importance courts can give to language like this in employment contracts. Employers may need to rethink their strategies when implementing contract changes. In the future, it may be necessary to adopt a more collaborative approach with employees and unions to navigate major changes to employment terms.
Kim Sartin of Baker McKenzie said, “This is a unique case because Tesco made an explicit commitment that any changes in terms prior to the change would be permanent. To give effect to this contractual promise, Tesco had to include a clause that stated that it could not dismiss employees for the sole reason that they were denied the contractual benefit. Tesco would still be able to fire employees for reasons other than the contractual clause, such as poor performance or misconduct. Business closure, poor performance, or misconduct.
“Dismissal or re-engagement of employees is usually a last resort option. This case serves as a reminder to employers that they should check past contracts before embarking on any large-scale contract variation exercises.
The code emphasizes the importance of reaching an agreement. Employers who are considering dismissal or re-engagement must also be aware of future developments. The Labour government has pledged to end fire and rehire except in cases where there are no other options. Their manifesto also commits to replace the code with a stronger one, so it is unlikely that this will be the final word on the subject.
Further reactions to the Tesco fire verdict and rehire decision…
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