Between 2007 and 2009 Tesco was in the process of restructuring distribution centres. As part of negotiations with the USDAW union, the benefit of Retained Pay was offered to employees who were willing to relocate instead of being offered a redundancy payment.
This incentive was described by Tesco as being “guaranteed for life”, could not be negotiated away, would increase in line with any pay rise and would be a “permanent feature” of the employee’s contract. The Claimants alleged that the sole reason for their agreement to transfer to the new locations, which for some meant a commute of 45 miles from their previous location, was the offer of Retained Pay. This guaranteed their income for as long as they remained warehouse operatives.
In 2021 Tesco announced that they would remove this Retained Pay entitlement. They offered a lump sum in exchange for giving this up. If the employees did not accept this then they would be fired and rehired on the new terms. In response to this USDAW applied to the High Court for a declaration that the contracts were subject to an implied term preventing Tesco from exercising its contractual right to terminate for the purpose of removing or diminishing the employees’ right to Retained Pay. The High Court granted this.
The first thing the court decided was that because of the use of the wording describing the Retained Pay as permanent, there was a conflict between this right and the contractual right to terminate the contract for the purpose of removing it.
The court also concluded that the contracts were subject to an implied term that Tesco would not end the contract for the purpose of removing the Retained Pay benefit because of the “extreme” facts of the case.
Finally, the court reasoned that to allow Tesco to terminate and re-engage on new terms would remove a significant proportion of the pay that the employees received and negatively impact their legal rights. The court therefore concluded that it was just and convenient to make an order restraining Tesco from giving notice to terminate the contract of an affected employee contrary to the implied term.
The courts are usually very reluctant to grant such injunctions or interdicts. This is a rare result of fire and rehiring cases, which arose because of the guaranteed nature of the Retained Pay benefit. But employers should still be very mindful when drafting any contractual entitlements that may be seen as permanent. It is also very important to ensure that the process of changing employees’ contracts is handled correctly.
If you have any questions on any of the issues mentioned in the above article, please contact Natalia Milne.