24/09/2024

On 12 September 2024, in the case of Tesco Stores Ltd v USDAW and Others [2024] UKSC 28, the UK Supreme Court unanimously allowed an appeal brought by USDAW (the Union) on behalf of employees and restored an injunction preventing Tesco from firing and rehiring employees for the specific purposes of depriving them of Retained Pay (RP) as it was agreed that RP was a permanent benefit.

The appeal raises fundamental questions about an employer’s right, under contract law, to terminate a contract of employment by giving notice and the remedies for breach of employment contract.

Background

RP was a financial contractual entitlement that was agreed between the Union and Tesco to be a permanent benefit.

In 2007, Tesco closed some Distribution Centres to incentivise existing employees to relocate. Tesco and the Union collectively agreed to provide RP to employees that agreed to relocate.

As this RP was agreed via a collective agreement, the right to RP was then incorporated into those employees’ contracts of employment as an express term.

The RP clause stated that RP would “remain a permanent feature” of an employee’s contractual entitlement, subject to certain qualifications.

A separate clause gave Tesco a contractual right to dismiss employees without cause, on notice.

In 2021, Tesco offered to buy out the right to RP. Tesco informed employees that, if they did not agree to the removal of the RP term, they would be dismissed and offered re-engagement on identical terms, but with no RP term

Some employees refused to accept the offer; the Union then successfully applied to the High Court for an injunction to restrain Tesco from terminating their employment for the purposes of removing their right to RP.

Tesco appealed to the Court of Appeal, who overturned the High Court’s decision to impose an injunction.

Supreme Court (SC)

The SC unanimously restored the injunction and, by virtue of doing so, have restrained Tesco from terminating employees for the purposes of removing their right to RP.

The SC held the employment contracts contained a term implied by fact meaning

Tesco’s right to terminate could not be exercised to deprive employees of their right to RP.

In arriving at that decision, the SC started by interpreting the express RP term.

The SC rejected Tesco’s argument that the RP term simply meant that the RP  entitlement was only “permanent” for the contract duration and was subject to Tesco’s unqualified right to dismiss on notice.

The SC stated that such an interpretation would give no substance to the express promise that the entitlement is  “permanent”.  The correct interpretation of the RP clause was that it would continue for as long as the employee remained employed in the same role, subject only to the qualifications stated within the clause.

Indeed, the SC acknowledged that the right to RP was deprived of  value if Tesco could at any time unilaterally terminate the employment; therefore, the right to dismiss was qualified by an implied term not to dismiss in a way that would deprive employees of the right to RP.

The SC found it ‘inconceivable’ that the parties’ objective mutual intention was that Tesco could unilaterally dismiss to deprive these employees of the right to RP.

Importantly, the SC noted that Tesco’s right to dismiss for any other reason was entirely unaffected by this implied term. The SC drew an analogy to employees with entitlement to Permanent Health Insurance (PHI) benefits and the implied term that employer was restrained from dismissing to deprive them of PHI.

On remedy, the SC recognised that an injunction would amount to indirect specific performance of Tesco’s obligation to continue to employ the employees on RP.  Whilst the general rule is that specific performance will not be granted: (i) of an employment contract; or (ii) where damages are an adequate remedy, this was an exception to that rule. Here, the SC found that damages would be inadequate and, as there was no breakdown of trust and confidence between Tesco and the employees, the contract could continue. In those circumstances, the injunction was granted.

Commentary

This is a reminder that any contractual term is underpinned by implied obligations by law and fact. Here, the implied obligation that had arisen out of the facts was to not act in a way that deprived the employee of a benefit which they were entitled to. It demonstrates the willingness of the Supreme Court to stand back and assess the reality of the situation. Here it was ‘inconceivable’ that when RP was agreed that the parties intended that Tesco could unilaterally terminate their contracts at any time to deprive them of this permanent benefit to RP.

It is also a noteworthy development from the SC that by issuing the final injunction it was thereby preventing Tesco, a private sector employer, from dismissing an employee for an indefinite period if the purpose of the dismissal is to remove the RP benefit. It may well be the case that we will see more claims for specific performance in breach of contract claims with arguments being made that compensation is an inadequate remedy.

This is another case that casts a bad light on the use of fire and re-hire. This is so when both Northern Ireland and Great Britain are looking at strengthening the rights of workers that includes curtailing the use of fire and re-hire.