‘Potentially devastating’: Lawyers’ reaction to Tesco’s fire and rehire decision

Experts in employment law comment on the UK Supreme Court ruling that Tesco can’t fire and rehire workers who are receiving’retained wages’.

‘Potentially disastrous’

Katie Maguire, Devonshires

This is potentially devastating for employers, who rely on the practice of changing terms and conditions to employees. Any employment solicitor before this judgement would have advised their client who wanted to make changes to a contract but could not get the consent of the employee to do so to terminate the current contract and offer the employee reemployment with the new terms. This is also called fire and rehire.

The Supreme Court’s decision to injunct an employer from firing and rehiring its employees shows the willingness of the courts to intervene, and to examine the intentions of the parties at the time the contract was signed. It shows the direction in which case law is moving and could prevent fire and hire practices in future. This is a warning to employers that rights are shifting in the UK in favor of employees. New legislation and suggestions from the Labour Party will be imminent, which will expand rights and protect workers.”

“A dramatic departure from usual positions”

Colin Godfrey, Taylor Wessing

The case was not about the practice, but rather whether it was legal to amend the contract in order to remove the employees’ right to a’retained’ pay award. It was initially described as a “permanent feature” of employee contracts. Usdaw claimed that this prevented Tesco employees from being fired and then rehired to remove the retention pay from their contracts.

The High Court issued an unusual injunction to prevent Tesco from dismissing the affected employees. It deemed that the reference to retained wages being permanent resulted in a implied term that Tesco wouldn’t dismiss an employee with the intention of removing their right to retained wages.

The Court of Appeal reversed that decision. It found that there was no implied right and that Tesco, like any employer, had the right to terminate the contract with notice. An injunction to stop the dismissals would have been inappropriate. The Supreme Court, in a landmark ruling, has overturned the Court of Appeal’s decision and reinstated the High Court’s injunction.

The Supreme Court ruled that Tesco could not terminate contracts to deny employees their Retained Pay. This is a radical departure from the normal position where, if a contract cannot be changed, an employer may choose to terminate it by giving a notice that is in accordance with its terms.

The decision may have wide-ranging implications for UK employers seeking to alter employees’ contractual rights, where these rights were stated to be a permanent feature. The decision shows how employers need to be careful when negotiating contractual terms. It also highlights how ambiguous language can make it difficult for them to change the terms or even rehire employees on new terms.

The decision will increase scrutiny on firing and rehiring, and the proposed changes under Labour are likely to make it an even more closely regulated practice. Employers should tread carefully when implementing changes.

“Fire and hire again remains a valuable tool”

James Townsend, Payne Hicks Beach

“Fire and rehire is a useful tool that employers can use to modify employment conditions when employees refuse to do so.

Do we need a government law on fire and hire?

Henry Clinton-Davis Arnold & Porter

There has been much talk about employers trying to change the terms and conditions of employees through firing and rehiring. This case was a bit unique, as the pay-supplement had been offered to the employees for the entire duration of their employment. The court felt that it would be a ‘contravention of common sense’ if the company was able to take away the benefit and offer new employment terms.

“The new Labour Government is trying to ban the practice, except in exceptional circumstances. Do we need the government going that far? Fire and rehire is a tactic that has been used almost exclusively as a last resort. This was emphasized by the new Code of Practice which came into effect on 18 July of this year.

There are times where perfectly reasonable changes to terms are rejected despite the fact that there has been extensive consultation. In these cases, the fire-and-rehire option may be the only solution to implement the change. If employers continue to use outdated and ineffective terms and practices they will harm their business and, ultimately, affect the job prospects of the employees.

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