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UK: Changing employment terms: “Fire and rehire”

“Firing and rehiring” is the practice of facilitating a change of employment terms by dismissing employees and then immediately re-engaging them on new terms.

The Union of Shop, Distributive and Allied Workers (USDAW) brought a claim on behalf of employees working at Tesco warehouses who were told to give up their entitlement to retained pay. The retained pay had been awarded as part of a restructuring exercise in 2007, as an incentive for employees to relocate to another warehouse. USDAW argued the employees had a permanent entitlement to retained pay.

The High Court ruled that the parties intended that the entitlement to retained pay should be permanent and granted an injunction to prevent Tesco “firing and rehiring”. However, the Court of Appeal found that nothing in the wording of the retained pay provisions prevented Tesco from giving notice to terminate the contract in the usual way. The Court also noted that the granting of an injunction was not justified in this case, even if the High Court’s interpretation of the contract had been correct.

Key Action Points for Human Resources and In-house Counsel

A significant but manageable risk for employers adopting “fire and rehire” tactics is unfair dismissal claims. The government recently announced a new Statutory Code which will enable tribunals to increase the compensation payable to employees where employers unreasonably fail to comply with their statutory obligations to dismiss fairly and to consult and inform employee representatives. The draft Code is expected to be published this summer for consultation.  For further information, see our update: Government announces new statutory code to protect employees from “fire and rehire” tactics to change

Employers should consider how to retain flexibility when offering entitlements that may be construed as permanent. The High Court in this case noted that Tesco could have set a longstop date for the entitlement to retained pay by use of a sunset clause.

USDAW v Tesco Stores Ltd