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High Court grants injunction to restrain employer’s ‘fire and rehire’ exercise

18 February 2022

The High Court has granted an injunction preventing Tesco from “firing and rehiring” employees in order to remove a contractual entitlement to enhanced pay. While the facts of this case were unusual and it is unlikely to lead to a flood of similar cases, with the practice of “fire and rehire” coming under increasing scrutiny, we consider the implications for employers.

“Firing and rehiring” refers to the practice of making changes to employment terms by way of dismissal and re-engagement on new terms. Employers tend to go down this route where a variation can’t be agreed. However, this approach is not without risk. The key exposure will be to claims of unfair dismissal in respect of employees with unfair dismissal rights unless an employer can demonstrate the reason for the termination was “some other substantial reason” and that the dismissal was not unfair in all the circumstances.

In certain circumstances, a court may consider whether a term should be “implied” into a contract of employment to reflect the parties’ intentions. Whether or not a term is implied will depend on the facts of the particular case.


When Tesco sought to restructure its distribution centres as part of its ongoing expansion in 2007/2008 this involved some closures and relocations. In order to retain experienced staff, Tesco offered some employees incentives to relocate to the new sites as an alternative to a redundancy package. This included an element called Retained Pay. In some cases, Retained Pay accounted for nearly 40% of an employee’s overall pay.

In its communications with staff, and as part of the collective bargaining negotiation with its recognised trade union USDAW, Tesco guaranteed that Retained Pay would be a permanent element of these employees’ pay and stated it was “guaranteed for life”, would increase yearly in line with pay rises and would be “protection for life at the new Tesco contract site”. A subsequent collective agreement in 2010 also confirmed Retained Pay’s “permanence” and that it could only be removed by mutual consent, in the event of promotion or in relation to a contractual change in working patterns. This term was incorporated into individual employment contracts.

In January 2021 Tesco sought to remove the Retained Pay element in order to simplify its payroll. It offered employees who still enjoyed it a lump sum in return for giving up the Retained Pay entitlement, failing which employees would be dismissed and offered new terms without it. Around 40 employees refused the offer.

USDAW, along with three employees, applied to the High Court for a declaration that the relevant contracts included an implied term preventing Tesco from exercising its contractual right to terminate in order to remove the entitlement to Retained Pay. They also applied for an injunction preventing Tesco from terminating the contracts in order to withdraw the Retained Pay element.

Injunction granted

The High Court found in favour of USDAW and the employees.

The High Court was clear that a reasonable person, with all the background knowledge, would have understood the use of the word “permanent” and Tesco’s communications to confer an entitlement to Retained Pay for as long as employees continued in their same role. In order to give effect to this, the High Court concluded that a term should be implied, for reasons of business efficacy and obviousness, to prevent Tesco from giving notice of termination in order to remove the right to Retained Pay.

It also decided that damages would not be an adequate remedy because the Retained Pay element made up such a substantial element of the overall compensation. As such, it was just and equitable to grant an injunction preventing Tesco from taking steps to “fire and rehire” the employees on new terms, or amend or reduce their Retained Pay.

Implications for employers

Injunctions preventing an employer from exercising a contractual power to give notice to terminate are uncommon in UK employment law. The High Court noted that the facts of this case facts were “extreme” and “unusual”. Outside of the realm of final salary pension schemes, employers rarely make promises that a payment or benefit will be “permanent” or “guaranteed”. While the implications of this case should therefore be limited, it does highlight the risks should employees be able to point to such promises.

In light of this, employers should:

  • Be extremely cautious of using clear and unambiguous language which could be construed as guaranteeing contractual entitlements on a permanent basis.
  • Consider setting a “long stop” date at which point the entitlement would come to an end.
  • Consider limiting any promises to last only for so long as an employee’s contract is in place.
  • Be alert to trade unions seeking to negotiate “permanent benefits” during any collective bargaining process.

This judgment comes as the practice of “fire and rehire” comes under increasing scrutiny from the public and politicians. Acas recently published new guidance on this practice which reinforces that this route carries significant risks. We consider the issues employers should bear in mind when considering implementing changes in this way in our article here.

USDAW and ors v Tesco Stores Ltd – judgment available here


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