Fire the workforce and then rehire them on less favourable terms. Legal?

Of all the unattractive activities that some businesses participate in, the case involving Tesco has got to be in the top 10.

In January 2021, Tesco Stores Ltd, the well known supermarket chain, fired warehouse workers only to then rehire the same workers but on less favourable contract terms.

This practice is called "fire and rehire", and is pretty much exactly what it says on the tin.

In February 2022, the workers' union, USDAW, won an injunction in the courts against Tesco to prevent it from rehiring 42 workers who were contractually entitled to retained pay.

What is retained pay?

Simply put, in the event of a management action (such as the one taken by Tesco) that would reduce an employee's basic pay, they are entitled to keep it at the same level.

So the employees who signed and moved onto lesser contracts had their pay guaranteed by way of retained pay. Tesco, however, say it was only for a limited amount of time. The employees say they were given unambiguous reassurance from Tesco that their pay would remain the same forever.

The conduct started in 2009 when Tesco introduced, as an incentive to keep experienced employees when some warehouses closed, a process that fired the staff at a closing warehouse and offered the same employees a contract at a new warehouse in a different location with "retained pay".

The new contract only offered "retained pay" for a period of time and not forever.

In its complaint, the union said the supermarket chain could not avoid its "permanent" commitment to retained pay. But Tesco argued that this permanency only applied while those contracts were in place; and the Court agreed.

Tesco has decided to "phase out" retained pay but have said they "will continue to work constructively with the small number of colleagues affected to agree a way forward".

According to the union, Tesco's retained pay contracts included an implied term that workers wouldn't be fired. If USDAW is right, then its interpretation would prevent Tesco from ending workers' contracts and if the Supreme Court were to agree then it would have consequences for every employment contract in England and Wales.

You see, under the law and by way of statute, every contract of employment must have a termination clause. This legal requirement, to include a termination clauses in employment contracts, is going to be a serious obstacle to the union's claim.

What advice am I giving to clients?

My clients have the best employment contracts possible by virtue of them being drafted by Britton and Time Solicitors . Those who don't have an amazing employment solicitor to draft their contracts should be mindful of contractual clauses relating to termination.

Particular attention should be given to over promising in contract clauses and the use of words like, "permanent".

Employers won't be able to fire and rehire employees in order to avoid providing contractual entitlements if they have stated that such entitlements would last indefinitely or permanently at the time of the contract.

So I recommend employers review their employment contracts to make sure contractual entitlements are drafted correctly and aren't drafted to be 'permanent' if that's not the intention.

You can let me know here on LinkedIn if you need any help reviewing your companies contracts to ensure you have the flexibility to change employee entitlements where required. You can also email me at [email protected], telephone 02030075500 or visit the website at www.brittontime.com.

If you'd like to discuss the content of this blog further, feel free to contact me here also.