Court of Appeal overturns injunction in Tesco 'fire and rehire' case

At a glance

• In February this year, the High Court granted a highly unusual injunction preventing Tesco from using so-called ‘fire and re-hire’ to implement changes to terms and conditions for some of its workforce in order to remove a ‘permanent’ contractual entitlement to enhanced pay.
• The Court of Appeal has now overturned the injunction, finding that the High Court had erred in finding that both parties intended that the entitlement should be permanent.

In February this year, the High Court granted a highly unusual injunction preventing Tesco from using so-called ‘fire and re-hire’ to implement changes to terms and conditions for some of its workforce in order to remove a ‘permanent’ contractual entitlement to enhanced pay (see Genie 7 February 2022). The Court of Appeal has now overturned the injunction, finding that the High Court had erred in finding that both parties intended that the entitlement should be permanent in the sense that the contracts would continue for life, or until normal retirement age, or until the closure of the workplace, or that the circumstances in which Tesco could terminate the contracts should be limited. Furthermore, even if the High Court had been correct in its interpretation of the contract, this was not a case in which the grant of an injunction was justified.

Tesco recognised USDAW for collective bargaining purposes. As part of a reorganisation between 2007 and 2009, USDAW and Tesco agreed individual contractual entitlements to ‘Retained Pay’, as an alternative to a lump sum redundancy payment and as an incentive to staff to relocate. In communications to staff, Tesco made clear that the individual entitlement to Retained Pay would remain for as long as they were employed in their current role, that it could not be negotiated away, and that it would increase each year in line with any general pay rise. A 2010 collective agreement stated that Retained Pay would be a ‘permanent feature’ of an individual’s contractual entitlement, and could only be changed through mutual consent, on promotion, or in the case of an employee-requested change to working patterns. In January 2021, Tesco announced its intention to remove Retained Pay, offering a lump sum payment in return for giving up the entitlement, failing which employees would be dismissed and offered new terms excluding Retained Pay. USDAW applied to the High Court for a declaration that the employees’ contracts were subject to an implied term preventing Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the right to Retained Pay. USDAW also sought an injunction preventing Tesco from terminating the contracts. The High Court granted the injunction; Tesco appealed.

The Court of Appeal held that there was no evidence that anyone addressed their mind to the possibility of Tesco seeking to ‘fire and rehire’. Although the Retained Pay provisions specified no time limit, and there was no ‘sunset clause’, that was not sufficient to get round the lack of clarity in USDAW’s case as to what both parties to the contract meant by ‘permanent’. The express terms of the contracts should therefore be interpreted in accordance with what the High Court found to be their natural and ordinary meaning, namely that Tesco would have the right to give notice in the ordinary way, and that the entitlement to Retained Pay would only last as long as the particular contract. The Court also held that the implied term argued for by USDAW was also insufficiently clear.

The Court held further that, even if the High Court had been right in its interpretation of the relevant terms, this was not a case in which an injunction was justified. The Court noted that it was unaware of any case in which a court has granted a final injunction to prevent a private sector employer from dismissing an employee for an indefinite period. It also pointed out that an injunction cannot be granted unless it is clear beyond argument what the defendant can or cannot do, which could not be said of the injunction granted by the High Court. The remedy for a wrongful dismissal at common law is almost invariably financial.