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Court of Appeal overturns injunction preventing employer from ‘firing and rehiring’

  • United Kingdom
  • Employment law
  • ESG

22-07-2022

In a significant recent decision (USDAW & Ors v Tesco Stores Ltd), the Court of Appeal (CA) has overturned an injunction imposed by the High Court (HC) which had permanently prevented an employer proceeding with ‘fire and rehire’ proposals to remove a pay enhancement. While the case involved unusual facts and contractual terms, the CA decision appears to make it extremely difficult for workers and unions to obtain injunctions to prevent ‘fire and rehire’ dismissals, leaving workers with claims for wrongful dismissal and unfair dismissal, for example, which will be finite in value. The case highlights once again the legal, political and moral complexities surrounding ‘fire and rehire’. The question of whether changes to the law should be made to provide additional protection or penalties in this area remains a live issue and may be addressed in a promised Statutory Code from the Government.   

Background

This case involved an employer seeking to remove, by means of dismissal and re-engagement (so-called ‘fire and rehire’), enhanced pay arrangements, given to workers to induce them to relocate to a significantly different warehouse location when their then workplace closed. The relevant employment contracts (in 2007) stated that the enhanced pay arrangement (‘Retained Pay’) could only be changed by mutual consent or would cease on an agreed promotion or fundamental shift change. A collective agreement a couple of years later, and which was found to be incorporated into employment contracts, described the Retained Pay arrangement as a ‘permanent feature of an individual’s contractual eligibility’, which could only change with mutual consent, on promotion to a new role, or in the context of an individual requesting a shift change. Before the 2007 contracts were entered into Q&A documents described the Retained pay arrangement as ‘guaranteed for life’, applicable ‘for as long as you are employed…in your current role’ and incapable of being negotiated away under collective bargaining arrangements.

The HC decided that the Retained Pay arrangement could not in reality last forever, despite being described as a ‘permanent’ contractual benefit. Even so, the HC found it appropriate to imply a term into the contracts to the effect that the employer could not terminate the contracts and offer re-engagement on revised terms as a means of prematurely ending the Retained Pay benefit – the employer’s general right to terminate the contract on notice was limited by that implied term. The HC then granted an injunction permanently preventing the employer from terminating the contract for the purpose of removing Retained Pay, thwarting its fire and rehire plan. The employer appealed.

Court of Appeal decision

It was not disputed that the benefit of Retained Pay was incorporated as a term of the employment contracts. For some employees it represented up to 40% of their wages and had been received for over 10 years. The CA agreed with the HC that, despite the employer having variously described the benefit as ‘protection for life’, ‘guaranteed for life’ and remaining ‘for as long as you are employed’, the natural and ordinary meaning of the express terms of the contracts was that entitlement to Retained Pay would only last as long as that particular contract was in force. Beyond this, however, the CA decision diverged significantly from that of the HC.

The CA rejected the HC’s decision to impose an implied term which protected the Retained Pay right from fire and rehire. The basis on which terms are implied into contracts is governed by  well-established principles. These, for example, require the relevant term to be one which is necessary, on an objective assessment,  in order to give business efficacy to the contract or to be a term which is so obvious that it goes without saying. The implied term has to be precise and clear. It must not contradict an express term of the contract. The CA considered that, on the facts, the implied term could not be identified with sufficient clarity – for example it was unclear what ‘guaranteed for life’ would mean in practice (for example in a redundancy situation where the employer was selecting employees with the most expensive pay entitlements for redundancy). It was also not ‘obvious’ that the employer and the workers would have given the same answers if asked to identify the relevant term and the circumstances in which Retained Pay could be removed. The fact that the contract also gave an express, unfettered right to terminate the contract on notice was a further serious obstacle to the implied term.

The CA was satisfied that the express terms of the contract allowed the employer to terminate on notice and concluded that the uncertainty about what was meant by the Retained Pay being ‘permanent’ prevented the identification of any clear, obvious or legally necessary implied terms governing its duration. None of the employer’s pre-contractual statements had been made or understood in the context of a fire and rehire scenario and for that reason the CA declined to use them as a basis for interpreting the contract in that context many years later.

The CA also rejected the Union’s contention that the Retained Pay provision was analogous with contract terms providing  permanent health insurance, where dismissal resulting in the loss of insurance cover has been deemed unlawful (Aspden v Webbs Poultry and Meat Group (Holdings) Ltd).The Union’s claim that the employer should legally prevented (estopped) from reneging on a promise to maintain Retained Pay was similarly unsuccessful.

Taking these factors into account the CA found the HC had been wrong to grant the injunction. The CA furthermore expressed the view that, even had the HC been correct in finding the right to Retained Pay must endure as a permanent element of the contract, an injunction was inappropriate in the circumstances. The CA could not think of any other case in which a court had granted a final injunction to prevent a private sector employer from dismissing an employee, or bringing a contract to an end,  for an indefinite period, as opposed to requiring, for example, a particular procedure to be followed first before termination could occur.

Comment

It is possible that this case may proceed to the Supreme Court for final clarification of the legal position, given the very different approaches of the HC and CA to the implied term issue and the appropriateness of an injunctive relief in these circumstances. However, we understand that permission has yet to be granted. The unusualness of the facts may also discourage further judicial scrutiny.

Subject to any appeal, this latest decision is favourable to employers and appears to reflect previous understanding of the law around fire and rehire. In particular, the CA decision applies an orthodox contract law approach under which pay arrangements and other contractual terms are not permanent but last for only as long as the contract of which they form part, enabling employers to introduce new terms by bringing that contract to an end. That position will only be disapplied if there is clear and certain drafting which limits the employer’s contractual power to end the current contract or ‘fire and rehire’, although the employee may have claims for unfair dismissal and other statutory claims.

‘Fire and rehire’ exercises continue to attract scrutiny and publicity for employers and it is likely that litigation will continue to explore and develop the legal remedies available to workers and unions. Further legal changes are expected in the form of a Statutory Code proposed by Government, which is likely to detail how employers must hold “fair, transparent and meaningful consultations” on proposed contract changes or face a 25% uplift in compensation. In the meantime, employers will need to continue to be mindful of the reputational and industrial relations risks in this area, as well as the potential legal liabilities.