Has ‘fire and re-hire’ been fired?

The increasingly controversial long-established practice of ‘fire and rehire’ has recently been the subject of an injunction. In USDAW v Tesco Stores, the High Court granted an injunction in favour of the union to restrain Tesco from ‘firing and rehiring’ employees to remove a “permanent” contractual right to Retained Pay. In the High Court’s view it was appropriate in this case to imply a contractual term so that Tesco could not terminate the employees’ contracts to remove the right to enhanced pay.

The Retained Pay was a term that had been negotiated and agreed between Tesco and USDAW (called Retained Pay) to incentivise employees to relocate at a time that Tesco was reorganising its distribution centres. These payments were agreed as an alternative to redundancy pay so that staff remained in the business and relocated rather than exited with a redundancy payment.

Tesco had told those employees who chose to remain and accept the Retained Pay that the right to it would be protected for as long as the employees stayed in their current role and would increase in line with any pay rise awarded.

Retained Pay was stated to be a “permanent” feature of employment contracts and could only be changed in very limited circumstances such as promotion or by mutual consent.

At the start of 2021, Tesco announced that it intended to remove the right to Retained Pay. As an incentive it offered a lump sum of 18 months Retained Pay to buy out that permanent right.

The alternative for employee who did not wish to accept this, was dismissal and an offer of re-employment on the new terms, i.e. without the Retained Pay.

USDAW took the matter to the High Court, which granted the injunction sought by the union.

The High Court focused on the meaning of the work ‘permanent’, which it took to reasonably mean as long as the employee was employed in the same role. That interpretation might clearly cause conflict with Tesco’s contractual to terminate employment. As a result, the High Court felt it was necessary to imply a term to give effect to the permanent nature of the Retained Pay. Tesco would still be able to terminate contracts but only where there was a good cause such as gross misconduct or a genuine redundancy. A dismissal to remove that right would not be permitted.

This principle is not new and is akin to cases where an employer wishes to dismiss an employee in circumstances where that employee would be entitled to the benefit of a long-term sickness or incapacity benefit. Employers in these types of cases must be very careful of what the real reason for dismissal is.

This case has come at a very interesting time: is it merely a re-statement of principles that have been around for some time, or is the tide turning on the practice of ‘fire and re-hire’.