Tesco loses legal battle over 'fire and rehire' of staff

Tesco was not entitled to terminate some employees' contracts and offer to rehire them on less favourable terms, the Supreme Court ruled on Thursday.

Shopworkers' union Usdaw took legal action against Britain's biggest retailer after Tesco sought to remove some warehouse workers' entitlement to increased pay by ending their contracts and offering to re-engage them – a practice often referred to as 'fire and rehire'.

The governing Labour Party has said it will outlaw "fire and rehire" tactics, but has yet to set out how it will replace current codes of practice.

A spokesperson for the Department for Business and Trade said: “We will be bringing forward legislation soon to put an end to unscrupulous fire and rehire practices, which have no place in a modern labour market.”

The Supreme Court ruled that Tesco was not permitted to use 'fire and rehire' in these circumstances and restored an injunction preventing the retailer from doing so.

Usdaw had won an injunction in February 2022 which prevented Tesco from dismissing the warehouse workers and offering them new contracts, but Tesco subsequently overturned that ruling on appeal.

The Supreme Court reversed that decision, however, ruling that Tesco's right to terminate employees' contracts could not be used to deprive them of their right to enhanced pay.

Tesco, which has a British grocery market share of nearly 28 per cent, said it accepted the ruling. A spokesperson said it related to “a very small number of colleagues in our UK distribution network who receive a supplement to their pay”.

“Our objective in this has always been to ensure fairness across all our distribution centre colleagues,” the spokesperson added.

Paddy Lillis, Usdaw general secretary, said in a statement that the ruling was “a win for the trade union movement as a whole”.

Lillis said of "fire and rehire" itself: “These sorts of tactics have no place in industrial relations, so we felt we had to act to protect those concerned.”

Usdaw brought the case on behalf of 42 workers employed at Tesco’s Daventry and Lichfield distribution centres after the supermarket giant tried to cut their wages as part of a change to their terms and conditions of employment.

The dispute centred on the workers' entitlement to enhanced pay for agreeing to move to a new distribution centre back in 2007.

When Tesco sought to remove the entitlement in 2021, it asked workers to agree to its removal for a lump sum payment or else their contract would be terminated and a new contract offered without the increased pay included.

In its ruling in favour of the workers, the High Court had noted that the workers had been guaranteed an entitlement to a specific payment labelled ‘retained pay’ to keep them within the business, which Tesco intended to remove by firing and then rehiring them.

The judge held that there was an implied term in the workers’ contracts that the right to terminate employment could not be exercised if the aim was to remove a right to ‘retained pay’.

The union's lawyer, Oliver Segal, said in court documents for the appeal in April that led to Thursday's ruling that Tesco was effectively arguing it has an "unrestricted freedom to terminate the relationship 'at will'."

Tesco, however, argued the affected workers had received increased pay worth thousands of pounds each for more than a decade.