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Shop workers’ union wins Tesco ‘fire and rehire’ battle

A shop workers’ union has won a Supreme Court battle against Tesco over so-called “fire and rehire” plans put forward by the supermarket giant.

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Published 16 September 2024

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A shop workers’ union has won a Supreme Court battle against Tesco over so-called “fire and rehire” plans put forward by the supermarket giant.

The case centred on a group of workers who had their salaries significantly increased by Tesco as an incentive to relocate to different distribution centres. This took place in 2007 and in 2021. Tesco wanted to bring this higher pay settlement – called ‘retained pay’ – to an end. It offered these employees a new contract without retained pay, with a lump sum to incentivise them signing. Those that did not sign would be fired and rehired without their retained pay.

Affected workers took Tesco to court, arguing that their contracts contained an implied term that Tesco could not terminate their contracts to remove their retained pay.

CB Head of Employment, Tania Goodman, comments:

“Tesco has just lost a significant case in the Supreme Court brought by a shop workers union that fought on behalf of its members that were fired and rehired on less favourable terms. The number of affected staff was only about 50 and Tesco has accepted the decision – although it didn’t have much choice.

The facts of this case relate to Tesco’s decision in 2007 to offer a significant and ‘permanent’ financial incentive called ‘Retained Pay’ to employees to relocate after it closed some of its distribution centres. It constituted about 32 to 39% of their wages but in 2021 Tesco proposed scrapping this payment by offering a one-off lump sum of 18 months Retained Pay instead. If this was refused then it would serve contractual notice to end the existing contracts of employment and thereafter offer new contracts without the Retained Pay.

The decision turned on whether Tesco’s right to terminate the contracts was prevented by an implied term that Tesco could not deprive employees of their right to Retained Pay as this was not something Tesco had negotiated at the outset.

The bigger question is whether this ruling sets a precedent that prevents this sort of practice from happening more generally. As a starting point, if contractual changes are needed then companies will try and renegotiate terms with their workforce through consultation and try to get consent – as per the initial stance taken by Tesco. However, if this is not achievable then, as a last resort, an employer can serve contractual notice to bring the existing contract to an end and offer a new contract on the revised terms after the notice period has expired. I don’t think this decision changes that principle as long as it’s done properly. The difference in the Tesco case is that it did not carve out the right to vary or end the Retained Pay in the future and referred to it in the contract as being ‘permanent’.

Employers therefore need to take great care when negotiating or renegotiating contractual terms and have a laser focus when drafting the contract if they want to avoid being handcuffed into long term financial commitments that may come back to bite them. Language matters as does effective industrial relations and clear communication. Unfortunately for Tesco these ingredients were missing meaning the employees were entitled to continue enjoying the benefit of Retained Pay indefinitely during their employment.”   

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Shorter Reads

Shop workers’ union wins Tesco ‘fire and rehire’ battle

A shop workers’ union has won a Supreme Court battle against Tesco over so-called “fire and rehire” plans put forward by the supermarket giant.

Published 16 September 2024

Associated sectors / services

  • Employment law for employees
  • Employment law for employers

Authors

A shop workers’ union has won a Supreme Court battle against Tesco over so-called “fire and rehire” plans put forward by the supermarket giant.

The case centred on a group of workers who had their salaries significantly increased by Tesco as an incentive to relocate to different distribution centres. This took place in 2007 and in 2021. Tesco wanted to bring this higher pay settlement – called ‘retained pay’ – to an end. It offered these employees a new contract without retained pay, with a lump sum to incentivise them signing. Those that did not sign would be fired and rehired without their retained pay.

Affected workers took Tesco to court, arguing that their contracts contained an implied term that Tesco could not terminate their contracts to remove their retained pay.

CB Head of Employment, Tania Goodman, comments:

“Tesco has just lost a significant case in the Supreme Court brought by a shop workers union that fought on behalf of its members that were fired and rehired on less favourable terms. The number of affected staff was only about 50 and Tesco has accepted the decision – although it didn’t have much choice.

The facts of this case relate to Tesco’s decision in 2007 to offer a significant and ‘permanent’ financial incentive called ‘Retained Pay’ to employees to relocate after it closed some of its distribution centres. It constituted about 32 to 39% of their wages but in 2021 Tesco proposed scrapping this payment by offering a one-off lump sum of 18 months Retained Pay instead. If this was refused then it would serve contractual notice to end the existing contracts of employment and thereafter offer new contracts without the Retained Pay.

The decision turned on whether Tesco’s right to terminate the contracts was prevented by an implied term that Tesco could not deprive employees of their right to Retained Pay as this was not something Tesco had negotiated at the outset.

The bigger question is whether this ruling sets a precedent that prevents this sort of practice from happening more generally. As a starting point, if contractual changes are needed then companies will try and renegotiate terms with their workforce through consultation and try to get consent – as per the initial stance taken by Tesco. However, if this is not achievable then, as a last resort, an employer can serve contractual notice to bring the existing contract to an end and offer a new contract on the revised terms after the notice period has expired. I don’t think this decision changes that principle as long as it’s done properly. The difference in the Tesco case is that it did not carve out the right to vary or end the Retained Pay in the future and referred to it in the contract as being ‘permanent’.

Employers therefore need to take great care when negotiating or renegotiating contractual terms and have a laser focus when drafting the contract if they want to avoid being handcuffed into long term financial commitments that may come back to bite them. Language matters as does effective industrial relations and clear communication. Unfortunately for Tesco these ingredients were missing meaning the employees were entitled to continue enjoying the benefit of Retained Pay indefinitely during their employment.”   

Associated sectors / services

  • Employment law for employees
  • Employment law for employers

Authors

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