UK: Changing Employment Terms “Fire and Rehire”

Authors: Graham Mitchell, Corinna Harris & Sophie Jackson

“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. This was 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 subsequently overturned this injunction.

The Supreme Court restored the injunction. The employment contracts contained a term implied by fact with the effect that Tesco’s right to terminate could not be exercised for the purpose of depriving the employees of their right to retained pay.

Key Action Points for Human Resources and In-house Counsel

See our comments above on ‘Employment reforms update’ in relation to the new statutory Code of Practice on dismissal and re-engagement.

Employers should consider how to retain flexibility when offering entitlements that may be construed as permanent. It was noted in this case that Tesco could have set a longstop date for the entitlement to retained pay but had not done so.

Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and others.