The practice of “fire and rehire” to vary the terms and conditions of an employee’s contract when they will not agree the change is controversial.
In fact, the leaders of Labour, the SNP and Liberal Democrats have all called for it to be made illegal, whereas the government, whilst criticising the practice, have not made proposals to end it.
In the recent case of USDAW and ors v Tesco Stores Ltd, an injunction has been granted which prevents Tesco from using the practice of firing and rehiring on new terms and conditions. So, why has the court done this?
Between 2007 and 2009, during a restructuring of its distribution centres, Tesco and the union, USDAW, agreed ‘Retained Pay’ for the affected employees. In a 2010 collective agreement, it was stated that the Retained Pay would become a permanent feature of the employees’ contract and could only be removed by mutual consent, promotion or if an employee requested a change to their working pattern.
In January 2021, Tesco announced its intention to remove Retained Pay. It offered to compensate those who agreed to the change by making a one-off payment. Those who did not agree to this change would be dismissed in line with their notice and rehired on new terms without the Retained Pay entitlement.
So why did the High Court issue an injunction stopping Tesco from doing this?
The Court considered the intentions and agreements reached previously between the Union and Tesco on the Retained Pay. The Court interpreted “permanent” as meaning exactly that save where the agreed specified exceptions applied. To allow Tesco to “fire and rehire” at a later date would allow it to go back on its original agreements and cause significant loss to the employees affected which would not be recoverable through ordinary claims for unfair dismissal.
So, what does this mean for employers?
In practical terms, “fire and rehire” is still potentially lawful. The facts of this case are very specific. Tesco had agreed to a “permanent” term which could only be ended in specified circumstances.
What this case really demonstrates is that when you are negotiating or even just drafting new terms, consider the wording and impact very carefully. Assess not just your current requirements but also what the future impact could be and take advice. It is always worth a second opinion and sense check.
[update] In response to outrage surrounding P&O’s actions, the government has pledged plans to publish a new Statutory Code of Practice around the use of “fire an rehire”, detailing steps employers should take to ensure a fair process. While no details have been announced, it is understood Tribunals will have power to add a 25% uplift to employee compensation if employers unreasonably fail to follow it. We’ll keep our eye on this as it develops.
If you’d like to talk to us further about this, don’t hesitate to get in touch.