Last Friday 15 July 2022, the Court of Appeal removed an injunction that stopped Tesco from dismissing a number of employees, before offering them new contracts without a provision containing entitlement to enhanced pay that had been contained in their old ones.  This practice, which has become known as 'fire and re-hire', has been under the spotlight recently, with calls for a ban from many quarters.

'Fire and re-hire' happens when an employer cannot agree changes in terms, usually to the employee's detriment, with its staff. In essence, the employer takes advantage of the potentially fair 'some other substantial reason' for dismissal in the law governing unfair dimsissal. 

Once an employer has built a business case for contractual changes, and consulted with its employees with a view to those changes, if agreement is not reached, this serves notice under the old contracts (bringing them to an end), while offering new contracts with the new terms incorporated.  

For employers, the biggest legal issue with fire and re-hire is where 20 or more employees are involved at the same establishment, which triggers an obligation to collectively consult with a recognised union or elected representatives. If an employers gets this wrong, they could be on the hook for a protective award of an eye-watering 90 days' pay per employee.

Back in February 2022, USDAW, the union recognised by Tesco at the relevant sites, obtained an injunction from the High Court stopping Tesco from using fire and re-hire to remove its members entitlement to ‘retained pay’. 'Retained pay' had been negotiated by Tesco and USDAW between 2007 and 2009 during a reorganisation as an alternative to a lump sum redundancy payment and an incentive to staff to relocate.  

This incentive was described by USDAW as ‘guaranteed for life’ and a ‘permanent feature’ of each relevant individual employee’s contractual entitlement. In February, the High Court largely agreed, holding that there was an implied term in each employee's contract that Tesco would not exercise its right to give notice for the purpose of removing the right to retained pay, and granted the injunction.

On Friday, though, the Court of Appeal took a different view. It said the statements used in relation to retained pay did not indicate that the pay was intended to be ‘guaranteed for life’. It would not stop, for example, Tesco firing an employee if they were found to have committed theft on site.  

This appeal decision is a return to a traditional view regarding an employer's freedom to terminate an employment contract on notice.  However, in response to the controversy over such practices (although likely to be delayed by current Westminster upheavals), the Government has promised to publish a new statutory code of practice on dismissal and re-engagement practices. Such a code will have to be taken into account by Employment Tribunals in determining whether an employer acted reasonably in its fire and rehire practices. Failure to follow the new code will likely result in a 25% uplift on damages awardable to successful employee litigants so it will be required reading for all employers embarking on business reorganisations.