The UK Supreme Court has delivered an important judgment in the case of Tesco Stores Ltd v Usdaw, involving “fire and rehire” tactics. Adam Pavey, Employment Partner at Beyond Corporate, looks at Tesco’s fire and rehire case and what the Supreme Court’s ruling means for employers and employees.
“Fire and rehire” is when an employer dismisses employees and rehires them on less favourable terms. It’s often used to enforce changes to pay or conditions, but it’s controversial due to concerns about undermining workers’ rights. The new government has consistently expressed a desire to prevent these practices.
The ruling blocked Tesco’s attempt to fire and require distribution centre employees to remove their entitlement to “retention pay”, which was a contractual benefit to encourage employees to stay in the business.
Tesco’s plan involved offering affected workers a lump sum or, if they refused, re-hiring them on new contracts without the retained pay. Essentially the employees had no choice. Usdaw, representing the workers, successfully argued that this would undermine the promises made in the employment contract to reward long service.
The Supreme Court restored the High Court’s injunction, ruling that Tesco could not use its contractual right to terminate employment simply to avoid paying retained pay. An implied term in the contracts precluded dismissals aimed at removing this benefit.
This decision sets an important precedent, ensuring that employers cannot unilaterally escape long-term contractual obligations through dismissal.
For employers, this case serves as a reminder: clear drafting of contractual terms and the careful handling of employee benefits are critical, particularly when collective agreements are involved.
The legal landscape for “Fire and rehire” is fundamentally changed by this ruling.
With the government moving to clamp down on “fire and rehire” practices, this ruling signals a shift in how courts view employment protections and the rights of workers.
