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Court of Appeal overrules “fire and re-hire” injunction against Tesco

Makbool Javaid, Partner - Simons Muirhead & Burton

In USDAW and others v Tesco Stores Ltd the Court of Appeal overturned an injunction that had prevented a supermarket from using fire-and-rehire to withdraw a collectively agreed contractual benefit that it had previously described as “permanent” and “guaranteed for life”.

In the late 90’s Tesco embarked on a restructuring exercise to expand its distribution network. This involved re-locating some staff to a new purpose-built premises. In order to retain existing staff and incentivise them to re-locate, Tesco agreed with USDAW that staff pay would essentially be protected from the less favourable terms of employment which were going to be offered to new staff.

The difference between the value of their existing package and the value of the new contracts was referred to as “Retained Pay”. Staff were reassured that Retained Pay would be “…a permanent fixture of their employment contracts” and this was written into the collective agreement.

When, some years later, Tesco sought to remove the right to Retained Pay, they were faced with significant resistance. USDAW argued that the right to Retained Pay was guaranteed for life. It applied for an injunction from the High Court, on behalf of 42 staff, to prevent Tesco from terminating their contracts.

The High Court granted the injunction. It agreed with USDAW’s interpretation of the word “permanent” and, in particular, that it guaranteed the affected employees a contractual entitlement to Retained Pay for as long as they were employed by Tesco in the same role.

In a judgment handed down on 15th July 2022, the Court of Appeal overturned the High Court’s injunction. It held that the wording “permanent” and “guaranteed for life” were not sufficiently clear to show a mutual intention between the parties that the contracts would continue for life, until retirement, or until the site was closed.

Furthermore, it held that there was nothing in the wording which suggested that Tesco could not give notice of termination in the usual way; the term implied by the High Court was too unclear to suggest a contrary interpretation. Given the lack of clarity, therefore, the Court of Appeal held that the draconian step of granting an injunction was inappropriate in the circumstances, particularly when there was already a remedy for wrongful dismissal which the employees could pursue – i.e., financial damages.

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