Employers will generally need to agree any variation of terms and conditions with their employees. If a change is unilaterally made it would give rise to a breach of contract claim and where there is a reduction in pay a claim for unlawful deduction from wages could be brought.
If a change cannot be agreed though the employer always has the option to dismiss the employee and offer to re-engage on the new terms. Referred to sometimes as ‘fire and rehire’ it has for a long-time been regarded as the safest option for an employer that wishes to ensure that the changes are effective.
However the validity of that option has come under scrutiny recently and in the case of USDAW and others v Tesco Stores Ltd a successful challenge to the employer’s right to give notice was made resulting in a High Court injunction preventing the employer issuing notice to dismiss the employees.
Between 2007 and 2009 Tesco’s expansion of its distribution network had led to some centres being relocated to bigger sites. In order to retain staff through these changes Tesco offered financial packages to existing employees in order to persuade then to stay on rather than leaving on grounds of redundancy. As part of this the employees were offered “Retained Pay”. This was described to the employees as being ‘guaranteed for life’. In communications they were told that it would continue “as long as you are employed by Tesco in your current role” and were given reassurances that it would not be negotiated away as part of any deal between Tesco and USDAW.
A number of employees who would have been entitled to redundancy payments agreed to transfer to new sites on the basis of these extra payments. In 2010 a new collective agreement stated that Retained Pay would be a ‘permanent feature’ of an individual’s contractual entitlement, and could only be changed through mutual consent, on promotion, or if an employee-requested a change to working patterns.
Despite this in 2021 Tesco announced that it wished to end the Retained Pay arrangements and began consultation in relation to the proposed changes. It considered that Retained Pay was no longer relevant, that only a minority of employees benefited from it and that it was time to simplify its payroll systems. An offer to pay a lump sum equivalent to 18 months advance payment of the Retained Pay was made to encourage employees to agree to this change. Those that did not agree were told that they would be dismissed and re-engaged on the revised terms that would not include retained pay.
It was held that taking into account how the Retained Pay had been introduced and the communications made about it a term should be implied in the contracts to prevent the employer from dismissing to remove the right to it.
It was highlighted that in previous cases primarily involving entitlement to permanent health insurance it had been found that it was right to limit the power of the employer to bring the contract of employment to an end if the effect would be to prevent the employee receiving payments under a scheme to which they had become entitled.
In the circumstances it was concluded that it was necessary to imply into the contract of employment of each affected employee a term to the effect that Tesco’s right to issue notice of termination could not be exercised for the purpose of removing or diminishing the right of that employee to Retained Pay.
Whilst the employees may have been able to bring claims for unfair dismissal in the Employment Tribunal it might have been found to be a fair dismissal on the grounds of “some other substantial reason” and even if their claims succeeded the employer may have refused to comply with an order for reinstatement.
That meant that it was appropriate to grant an injunction that the employer be restrained from, directly or indirectly exercising the right to dismiss where the purpose was to remove or diminish the right to receive Retained Pay.
This is the first case in which an injunction has been granted that prevents an employer from dismissing in order to vary the terms and conditions of employment.
However it does not mean that employers will now be prevented from dismissing and re-engaging in order to vary terms and conditions where no agreement can be reached. The facts in this case were described as ‘extreme’ and are unlikely to apply in the vast majority of cases as it is very unusual to see terms being agreed which are expressed as being in place “for life”.
This case though does show the risks should such language be used and where such terms do exist the employer should be wary of attempting to change them. However as was made clear by the court in this case an employer would not be prevented from dismissing the employees for reasons that were unconnected to the removal of the terms, for example if there was a redundancy situation or the employee had been found guilty of gross misconduct. It would be inevitable though that in such a situation the reasons given for dismissal would be subject to considerable scrutiny.