Tesco pay dispute : Court of Appeal overturn High Court Decision

We previously reported on the Tesco pay dispute and the High Court decision in USDAW and ors v Tesco Ltd in which the High Court prevented Tesco from exercising their right to terminate employment contracts of staff in order to re-engage them on new contracts without those pay entitlements.

On Friday 15th July 2022, the Court of Appeal released their judgment, which unanimously overturned the High Court decision and therefore allows Tesco to proceed.

Background on the Tesco pay dispute

The background facts to this case date back to 2007-2009, when Tesco were undergoing a reorganisation of its distribution centres. In order to provide an incentive to staff to relocate and as an alternative to a redundancy payment, Tesco offered staff ‘retained pay.’ This retained pay was incorporated into a collective agreement and was stated to be ‘permanent’.

Legal proceedings then ensued after Tesco highlighted their intention to staff to remove this retained pay entitlement.

On 3 February 2022, the High Court reviewed the use of the express terms of the agreement and the word ‘permanent’ and held that there was a clear mutual intention of the parties for the retained pay to be a permanent feature for as long as each employee remained in their role.

The High Court however noted that the express term as worded would conflict with a right to terminate the contract for the purpose of removing the retained pay. Therefore, it implied a term into the contract and granted an injunction against Tesco to prevent them from exercising this right – essentially, preventing Tesco from ‘firing and rehiring’.

Had Tesco inserted a time limitation into the retained pay clauses, or highlighted that it only subsisted for as long as the particular contract endured then the High Court may have reached a different outcome.

Tesco then appealed the decision to the Court of Appeal, the grounds of which included the following:

• The judge’s analysis of the express terms of the contract was incorrect;
• The judge should not have implied a term into the contracts to limit Tesco’s right to terminate the contracts; and
• The judge should not have granted an injunction.

Court of Appeal decision on Tesco pay dispute

The Court of Appeal reviewed the Tesco pay dispute and in particular the word ‘permanent’ and held that Tesco should have the right to give notice to terminate contracts in the ordinary way, and that the retained pay would be a feature of the contract for only as long as the individual remained in that substantive role.

However, as to the implied term imposed by the High Court, the Court of Appeal felt that there was little clarity around this and that it was inconsistent with the general right of an employer to dismiss. The Court of Appeal also held that the wording of the clause, which included reference to the retained pay being ‘permanent’, was too vague to enable an implied term to be inserted into the contract.

The Court of Appeal also stated that the grant of the injunction by the High Court was unjustified and the scope of the injunction was insufficiently clear. Further, the Court of Appeal found that there was no precedent for granting a final injunction to prevent a private sector employer from dismissing an employee for an indefinite period. The Court of Appeal felt that the injunction granted by the High Court would severely limit Tesco’s ability to manage its workforce and business interests, and that it should not, for example, place them in contempt for attempting to make genuine redundancies later down the line.

Comment

The judgment comes amidst widespread news and controversy surrounding the practice of fire and rehire. This approach to changing contractual terms is generally widely criticized as a draconian measure which in itself can lead to legal consequences, such as findings of wrongful and unfair dismissal.

In light of the general criticism of this practice, including ACAS guidance and the Government announcing their intention to introduce a Statutory Code of Practice to curb the practice of fire and rehire, the Court of Appeal decision will no doubt come as a blow to employees. It highlights that, even if an employer states that certain entitlements are to be ‘permanent’, these can still be altered and amended by employers in certain circumstances.

Whilst the Court of Appeal refused to apply an injunction and placed significant weight on the ability of an employer to be able to terminate contracts for legitimate means, a concern flowing from this decision may be that it creates a precedent for unscrupulous behaviour amongst employers. Rather than amending contractual terms by the recommended and safest route of obtaining mutual consent, employers may now feel that they can sidestep this option and proceed straight to fire and rehire. It will therefore be interesting to see whether the Government responds to this ruling and brings forward their scheduled Code of Practice, to provide clarity on this position and attempt to prevent unscrupulous behaviour from occurring.

The Trade Union USDAW, which instigated these proceedings and was one of the respondents in the Court of Appeal case, has already highlighted their intention to appeal the decision to the UK’s most senior and final court – the Supreme Court.

If they are granted permission to appeal the Court of Appeal decision, the Supreme Court will be provided with the opportunity to review the scope of contractual interpretation in light of the growing scrutiny surrounding the practice of fire and rehire.

If you have any queries surrounding the Tesco pay dispute case please contact a member of the Employment team.

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