Fire and Rehire – The Development of an Implied Term

Depending upon which side of the argument one sits it is either a legitimate tool, generally of last resort when all else has failed, to achieve a much needed change to terms and conditions or a bully boy tactic used by oppressive employers to force through a reduction in terms and conditions to employees disadvantage.

The traditional orthodoxy in these situations has always been that employers should put forward a good business case; consult; seek an agreed variation and only then dismiss on contractual notice and re-engage.  At that point employees would have a potential claim for unfair dismissal but would be reluctant to forego a readily available job and there would be a fighting chance that dismissal would be found to be fair on the ground of Some Other Substantial Reason.      

However, there is now a gloss on the traditional advice following the decision in USDAW v Tesco when USDAW were successful in obtaining an injunction against Tesco to prevent them applying the fire and rehire tactic which was being used to remove a “permanent” benefit.  USDAW’s case relied upon the cases involving employer attempts to dismiss employees who were or had qualified to receive permanent health insurance benefits.

In the 1990s Tesco had agreed, when moving employees to new depots, on less favourable terms that they would have “Retained Pay”, essentially the difference between their old and new packages, for so long as they remained employed by Tesco in their current role. In early 2021 Tesco announced that Retained Pay had served its purpose and wanted to remove it.  By that point it was a very valuable benefit accounting for up to 30% of an employee’s pay.  It was proposed to pay employees a lump sum package to remove the Retained Pay element and that if employees did not agree, after consultation, they would be lawfully dismissed and offered re-engagement.

Given the context in which Retained Pay was introduced the Court was necessary to imply a term into the contract that Tesco’s righto terminate the contract on notice could not be exercised to remove or diminish the right to Retained Pay.

The decision is an interesting development in relation to the law of implied terms and permanent contractual benefits and how these terms can impact upon what is generally an employer’s unfettered right to dismiss employees.  Where employees benefit from permanent contractual benefits USDAW does help to strengthen an employees’ positon when an employer arbitrarily seeks to remove those benefits. 

Whilst it does impact on the practice of Fire and Rehire there would have bene little that could have been done if Tesco had decided that it needed fewer employees and went through a redundancy process.  At best if it hired new employees there would have been unfair dismissal claims, capped at a year’s pay, subject to employees demonstrating their loss. 

Employers faced with the issue of permanent benefits in employment contracts who want to change terms and conditions will have to think a little more carefully about how to achieve their aims.