In February 2022 the High Court granted an injunction to prevent Tesco from firing and rehiring certain employees so that it could alter the terms of their employment. In 2007 Tesco had requested that warehouse staff relocate to alternative locations as part of a restructuring exercise. To make the relocation more attractive to affected employees, it agreed that they would receive ‘retained pay’ in addition to their existing pay.
An incorporated term in the claimants’ contracts described the change as ‘permanent’. This phrase was used by the High Court to justify the granting of an injunction to prevent Tesco from bringing an end to retained pay in 2021 by offering the employees a cash sum in exchange, or alternatively by terminating their contracts and rehiring them on different terms and conditions. This was seen as a shift in employment law and a victory for employees against the ability of employers to impose different terms on them by simply sacking them and then rehiring them.
However, the Court of Appeal has now reversed that decision and overturned the injunction on the basis that the correct claim arising out of this ‘fire and rehire’ policy would be a statutory claim for unfair dismissal in the employment tribunals, where the remedies are reinstatement, re-engagement or compensation, and/or a claim for wrongful dismissal and financial damages.
The Court of Appeal stressed that injunctive relief was not, in its view, appropriate in this case given that the claimants and Tesco had differing opinions on what the 2007 agreement on retained pay meant in practice – ie, whether or not it was intended to continue forever – and held that in cases where the facts are not clear beyond argument, it is not right to prevent an employer seeking to give notice of dismissal as permitted by the contracts of employment.
This ruling will be welcome news for businesses seeking to alter the terms and conditions of their employees as, if the injunction had been successful, it would have emboldened other employees to seek to argue for similar injunctions to prevent changes to their contracts. It is a return to the accepted ground that the current remedies for employees dismissed under fire and rehire are unfair and/or wrongful dismissal claims after the event, rather than injunctive relief preventing the employer from exercising their right to give notice.
However, while the Court of Appeal did not uphold the injunction in this case, it did not rule out the possibility of future injunctions being granted in other fire and rehire cases if the intention of the parties at the time in respect of the contractual term being altered could be clearly ascertained, and shown to be agreed and understood.
Employers should ensure flexibility when agreeing terms that they may later wish to alter or dispose of; for example, by specifying a future date where the benefit would lapse or making it clear that the benefit would only apply as long as the contract continued and that it would not affect the employer’s ability to give notice in the usual way.
It is clear that fire and rehire policies are coming under increasing scrutiny, both publicly and legally, and employees will be much more aware of them in the future, which may lead to more claims against businesses, something they should be wary of. It is also possible that there will be a further appeal in this case and this may change the landscape again.
The UK government has denounced the use of such policies, most notably in the P&O scandal, but has stopped short of introducing a law to ban them. It has instead said that it wants a code of practice to clamp down on fire and rehire. However, it is clear that opposing the practice is politically popular and may well be the subject of legislation in the near future.
Employers should be aware that such practices may not be legally acceptable forever and should tread carefully to avoid the kind of claims and/or negative publicity (like in the P&O case) that might set the legislative agenda firmly against them.
George Clough and Kim Crangle are associates in the employment department at Payne Hicks Beach