Supermarket giant, Tesco, recently lost a ‘fire and rehire’ case in the Supreme Court over proposals by the supermarket to dismiss employees and then and re-engage them on new contractual terms, with lower pay.
Background
In 2007, Tesco planned to close some of its existing distribution centres and open new ones in different locations. To retain staff, Tesco offered an enhancement to the pay of those staff willing to relocate from closing distribution centres to the new centres.
The enhanced pay was referred to as “Retained Pay” and the terms were confirmed in a collective agreement made between Tesco and its recognised union, USDAW. The collective agreement was incorporated into individual employment contracts and was referred to as a “permanent” contractual change, subject to alterations in specific circumstances.
In January 2021, Tesco wanted to bring Retained Pay to an end. All affected employees were asked for their agreement to remove Retained Pay from their contracts in exchange for a lump sum payment. If employees did not consent, Tesco planned to terminate their employment and offer them a new contract on the same terms, but without Retained Pay.
In this case, the appellants were employees who refused to give up their Retained Pay. A claim was brought in the High Court and the appellants sought a declaration that their employment contracts contained an implied term that Tesco could not terminate the contracts for the purpose of removing Retained Pay. An injunction preventing Tesco from terminating the contracts was also sought.
After the appellants success in the High Court, Tesco brought a successful appeal in the Court of Appeal. The appellants then appealed to the Supreme Court.
Findings
The Supreme Court unanimously allowed the appeal, finding that the appellant’s employment contracts contained an implied term that Tesco’s right to terminate could not be exercised for the purpose of depriving the appellants of their right to retained pay.
What does this mean for employers
A new Code of Practice came into effect in July 2024. This provides guidance to employers and employees on fire and rehire practices. The code suggests that, if agreement cannot be reached, the employer may be able to dismiss and re-engage the employee, but places emphasis that this should be a ‘last resort’ and encourages employers to consider all other available options before dismissal.
The key points to take away from the code are:
- Ensuring meaningful consultations take place to ensure employees understand the employer’s proposals.
- If an employee’s agreement is not given, the employer should re-examine its proposals and assess the potential negative impact of proceeding with them.
- An employer should not use the threat of dismissal as a negotiating tactic if they are not considering dismissal.
- An employer that opts for dismissal and re-engagement should give as much notice as reasonably practicable of the dismissal. They must comply with whichever is the greater of the employee’s contractual or statutory notice period as a minimum.
- Re-engagement of an employee should not be used as an opportunity to break an employees’ period of continuous employment.
- Any practical support that can be offered to an employee should be considered by the employer.
- Acas should be contacted for advice by employers before they raise a proposal of fire and rehire with their employees.
Employees cannot make a standalone claim for an employer’s failure to follow the code, however, they may bring a claim arising from a fire and rehire situation (such as an unfair dismissal and/or discrimination claim).
If employers are found to have unreasonably failed to comply with the code’s requirements, compensation can be increased by up to 25% by the tribunal.
The new Labour government has announced plans to introduce stricter measures against fire and rehire practices and so it is likely that this code could be changing in the near future.
While these new measures remain uncertain, it is safe to say that fire and rehire will remain a ‘hot’ topic in employment law.
