Dismissal and reengagement, also known as “fire and rehire”, is a practice that can be used by employers when employees refuse to agree to proposed new terms. The Court of Appeal has recently overturned a decision allowing Tesco to continue using the “fire and rehire” tactic.
Tesco was keen not to lose experienced warehouse staff during business changes and therefore between 2007 and 2009 it offered employees an incentive known as Retained Pay, whereby they received a significant pay increase if employees moved to other sites. Retained Pay was stated to be “guaranteed for life”.
In 2021, Tesco sought employee consent to bring Retained Pay to an end in return for a lump sum payment. Thereafter, Tesco sought to dismiss staff who did not agree to this change and to reengage them on less favourable terms, following which employees sought an injunction to prevent this from happening.
In February 2022, the High Court implied a term into the contracts that Tesco would not dismiss employees for the purposes of removing the employees’ right to the Retained Pay. It also granted a highly unusual injunction, banning Tesco from dismissing and rehiring workers on these less favourable terms.
In July 2022, the Court of Appeal overturned this decision, and removed the injunction. It was held that although there was no time limit to the Retained Pay clause, the clause should have been interpreted using its natural and ordinary meaning, namely that the entitlement to Retained Pay would only continue as long as that contract continued, and that Tesco would have the right to serve notice in the usual way.
Implications and considerations
The key takeaway from these cases is that it is important to ensure any contractual terms are clear and unambiguous. Any clauses granting benefits such as “Retained Pay” should be flexible to avoid them being construed as ‘permanent’.
The “fire and rehire” tactic remains a valid option to use when seeking to change contractual terms. However, due to the risks associated with it, this practice should only be used as a last resort.