The COVID-19 pandemic has required all of us to adapt quickly to a changing business landscape. For many businesses, the financial struggle caused by the economic downturn, has precipitated a need to consider making changes to the terms on which they employ their staff.

From a legal perspective, there are several ways in which employers can make such changes: obtaining express agreement from employees is preferable but, where time is of the essence, imposing change unilaterally, can be an attractive option. The “fire and rehire” strategy, or “dismiss and re-engage” is one way of imposing unilateral change – staff are dismissed and then re-engaged on new terms preferable to the business. As this tactic effectively bypasses coming to an agreement with staff, it has been adopted by a number of large employers wishing to effect change quickly and was particularly prominent in certain sectors during the pandemic. Many will recall the recent notorious British Gas and British Airways cases when they attempted to implement such strategies.

As a result of concerns about the impact of such an approach on employment rights, the government commissioned a report by Acas, which was published in June 2021. The results included suggestions for legal reform of the current protections provided to employees whose rights may be affected when their employer imposes the “fire and rehire” approach. Currently, affected employees seeking compensation for their losses must bring claims in the Employment Tribunal, including for breach of contract and unfair dismissal. Although the government’s response to the report has been to declare “fire and rehire” an unacceptable negotiation tactic, it has stopped short of implementing legal reform. Instead, it commissioned Acas to produce comprehensive guidance which encourages employers explore all other options first before considering ‘fire and rehire’ to vary employee contracts.

Against this background, it is perhaps not so surprising that in a recent case the trade union, USDAW, had petitioned the High Court for an injunction to prevent Tesco from using “fire and rehire” to withdraw a contractual benefit.

The background circumstances can be traced to 2007 and 2009 when, faced with a need to restructure its distribution centres, Tesco had introduced into its employment contracts a monetary benefit to incentivise warehouse staff to relocate. This benefit was said by Tesco to be “guaranteed for life” and a “permanent feature” of an individual’s contractual entitlement which could only be changed by agreement or on promotion to a new role. In 2021, Tesco wished to bring the scheme to an end and offered staff a lump sum in return for giving up the permanent benefit, failing which they would be “fired and rehired” on new terms excluding the benefit.

The High Court granted the injunction (see the judgment here) in favour of the warehouse operatives. It decided that it was an implied contractual term that Tesco’s right as an employer to give notice to terminate an employment contract could not be exercised for the purpose of removing or diminishing the right of the employee to receive the relocation benefit (which was an express contractual term).

Although employers wishing to engage in fire and rehire programmes are well-advised to be mindful of Acas’ guidance and try where possible to seek consensus for contract changes, this case does not necessarily spell the end of the “fire & rehire” mechanism to achieve change. As the High Court was at pains to point out, its facts were highly specific. There was a clear indication from the language of the contractual benefit and Tesco’s business communications around it that it was intended to be “permanent”. Additionally, its removal would result in the loss of a significant proportion of the remuneration payable to the affected warehouse workers, meaning that any compensation in the Employment Tribunal (which are limited for such claims) would not be adequate. Only in these circumstances could the High Court justify preventing Tesco from changing employees’ contractual terms. Given that the 43 employees involved in this case were supported by an experienced and highly-resourced union, they were no doubt in a stronger position than many employees faced with a similar situation. Injunction applications are rarely brought by employees due to their complexity and significant expense.

Consultation, rather than having to rely on “fire and rehire” as a cure, is clearly preferable and employers wishing to avoid falling into the same trap as Tesco would be well advised to incorporate terms to retain discretion and flexibility when introducing a benefit. Future-proofing the contract is of course preferable, to enable the employer to avoid such disputes over benefits which are interpreted as permanent, fixed rights. For instance, where an incentive is introduced in order to achieve an aim that is likely to be realised in the short-term, provisions for review and a longstop date are sensible inclusions to limit duration and the impact on the business.

 

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