Supermarket temporarily blocked from using ‘fire and rehire’ tactics

17 Feb 2021 By Jessica Brown

Ruling could pave the way for ‘profound changes’ in the law that would potentially restrict employers’ abilities to reduce costs 

A major supermarket has been told by a Scottish court it can’t terminate employees contracts and rehire them on lower pay, in a ruling that the union has hailed a victory over ‘fire and rehire’ tactics.

The Court of Session has issued a temporary injunction prohibiting Tesco from unilaterally withdrawing entitlement to retained pay, or from terminating workers’ contracts, at its Livingston distribution centre in order to re-engage them on new terms that do not include retained pay.

Usdaw, the union representing the workers involved, alleged the supermarket was forcing some of the staff at the Livingston distribution centre on to a new contract that would result in them losing between £4,000 and £19,000 per year.

Tesco has said it was ‘surprised’ by the court’s decision and was looking at how it could legally challenge the ruling.

The judgment could lead to big changes in the use of fire and rehire tactics, said Amanda Lennon, partner at Spencer West, but only if the case goes further.

“If the Tesco case goes further and we end up with a judgment that indicates this legal principle is unlawful, it will be a profound change in the law as we have understood it for decades and it will restrict the employer’s options where it has to take drastic action to, for example, cut costs,” Lennon said.

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For now, however, one injunction was unlikely to deter other employers, Lennon explained. “Injunctions tend only to be given in limited and urgent circumstances and the process is very costly so, unless the employees can afford it or are backed by a union willing to cover the cost, this type of remedy remains rare,” she said.

Although the tactic predates the outbreak, since the start of the Covid lockdown there has been more awareness of fire and rehire practices after their use by a number of high-profile employers. According to research by the TUC, one in 10 workers have been told to reapply for their jobs on worse terms since the first lockdown in March 2020.

The use of fire and rehire tactics can be a legitimate way for businesses to change outdated terms of service or revise terms that are commercially unsustainable, said Rose Smith, senior associate at Doyle Clayton. “Though we generally advise employers in such circumstances to consider seeking the agreement of employees to such changes, in practice this can be difficult to achieve, and termination and re-engagement can be a useful back-up.”

But Yunus Lunat, partner at Ison Harrison, said he had seen a “concerning trend” in their use during the pandemic. And while in many cases they have been used as part of a genuine attempt to preserve jobs during these challenging times, the technique was not without risk for employers.

“The absence of a flexibility clause in the contract of employment and thorough consultation and agreement will expose an employer to a claim of unfair dismissal from affected employees,” Lunat warned.

This was echoed by Lennon, who said that because firing and rehiring involves a dismissal, it gives eligible employees a possible claim for unfair dismissal. “These are unprecedented times and so otherwise esoteric or drastic actions have started to emerge as apparent norms,” she said.

”The longer the pandemic and lockdown restrictions continue, the more pressure will build on employers to use the fire and rehire tactic, in my view." 

A Tesco spokesperson said: “We are surprised by the court’s decision and we are looking at how we can legally challenge this. We will continue to engage with Usdaw and the very small number of colleagues at our Livingston distribution centre who are affected by this.

“Retained pay was offered a number of years ago as an incentive to retain colleagues. Today we have more than 16,000 colleagues working in distribution, the vast majority of whom do not receive this top up, so we have taken the decision to phase it out.

“We made a fair offer to those colleagues affected, and many of our colleagues have chosen to accept this. This decision does not affect the voluntary process.”

Usdaw is also representing workers in cases at other Tesco distribution centres, including Litchfield, Daventry clothing and Avonmouth.

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