‘Potentially disastrous’: Lawyers react to Tesco fire and retract verdict

Employment law experts have had their say on the UK Supreme Court’s ruling that Tesco cannot sack and re-hire distribution workers who receive ‘withheld pay’.

“Potentially disastrous”

Katie Maguire, Devonshires
“This is potentially disastrous for employers who have relied on this practice to implement a change to employee terms and conditions. Prior to this ruling, any employment lawyer would have advised a client who wanted to make changes to contracts but was unable to obtain the employee’s consent affected, who sought to terminate the existing contract and offer him re-employment under the new conditions, also known as fire.

“That the Supreme Court acts in this way and prevents the employer from dismissing and re-incorporating his staff shows that the courts are willing to intervene and look at the intention of the parties when the contract was signed. This shows the direction of travel in terms of case law and could effectively prevent fires and re-hiring practices in the future. It acts as an important warning to employers and demonstrates to a large extent that the pendulum of rights in the UK is swinging in favor of employees over employers, with new legislation and proposals from the Labor Party looming that will expand workers’ rights and protections.”

“A dramatic departure from the usual position”

Colin Godfrey, Taylor Wessing
“Importantly, this case did not consider the practice itself, but whether it was lawful to change the contract to eliminate the employees’ right to an enhanced wage reward called ‘retained wages.’ employee contracts, and Usdaw argued that this prevented Tesco from sacking and then re-hiring employees to remove it from their contracts.

“In a move that surprised many, the High Court took the unusual step of issuing an injunction preventing Tesco from sacking the affected employees, finding that the reference to retained earnings as a permanent feature gave rise to an implied term that Tesco would not sack with the purpose of eliminating the right to salary withholding.

“The Court of Appeal overturned that decision, finding that there was no such implied right and Tesco had, like all employers, the right to terminate a contract on notice and it was not appropriate to issue an injunction to stop the redundancies. In a landmark judgment , the Supreme Court has now reversed the decision of the Court of Appeal and reinstates the precautionary measure issued by the Superior Court of Justice.

“In its judgment, the High Court concluded that the employees’ contracts contained an implied term which meant that Tesco’s right to terminate the contracts could not be exercised for the purpose of depriving the employees of their right to retain pay. It marks a dramatic departure of the usual position that, where it is not possible to agree to a contractual change, an employer may choose to terminate that contract by giving notice in accordance with its terms.

“The decision could have wide-ranging ramifications for UK employers seeking to change employees’ contractual rights where those rights are expressed as an enduring feature. It highlights how careful employers need to be when agreeing contractual terms and how potentially lax language , even in negotiations, on the expected permanence of those conditions can prevent changes and even inhibit the ability to fire and hire again under new conditions.

“The decision will add even greater scrutiny to firing and hiring, and the changes proposed by the Labor government are likely to make this practice even more regulated. Employers are advised to take extra care whenever the need to implement changes arises.”

“Fire and rehiring remain a useful tool”

James Townsend, Payne Hicks Beach
“Although in this case Tesco was the subject of a restraining order, fire and re-employment, done fairly and in accordance with legal requirements, remain a useful tool for employers seeking to change terms and conditions of employment when employees refuse without reason to modify their terms and conditions of employment”.

“Do we need the government to legislate on fire and hire again?”

Henry Clinton-Davis, Arnold & Porter
“There has been a lot of publicity about employers seeking to change the terms and conditions of employees through firing and rehiring. The facts of this case were somewhat unique because the wage supplement had been expressly offered for the duration of the employees’ employment. The court found that ” common sense would be lacking” if the company could eliminate the profit by firing employees and offering them employment under new conditions.

“The new Labor government seeks to prohibit the practice of fire and rehiring, except in very exceptional circumstances. But do we really need government to go that far? The reality is that fire and rehiring have almost always been seen as a tactic of last resort, as highlighted by the new Code of Practice, which only came into effect on July 18 of this year.

“There are times when proposals to change perfectly reasonable conditions are rejected, no matter how much consultation has been done, and when the alternative of dismissal and rehiring may be the only way to implement the proposed changes. The alternative is for employers to be stuck with old and outdated terms and practices, the continuation of which will harm business and ultimately the job prospects of affected employees.”

‘Potentially disastrous’: Lawyers react to Tesco fire and retract verdict