You’re Fired! (But not really): UK Supreme Court Rules on ‘Fire and Rehire’

 The UK Supreme Court has recently considered the legality of the ‘fire and re-hire’ approach in the context of an employer firing certain employees whose contracts of employment contained a particular contractual benefit and then offering to re-hire those same employees without that contractual benefit. 

The Supreme Court held that this was not lawful. The employment contracts contained an implied term that an employer’s right to terminate could not be exercised for the purpose of depriving an employee of their right to the permanent contractual benefit. 

Although not binding in Jersey, it is likely that this decision will be followed here because of the close similarities between Jersey and English employment law.   

What happened…? 

 In 2007, Tesco decided to restructure its distribution centres. Some of the distribution centres were earmarked for closure. To incentivise the employees at the distribution centres marked for closure to move to another site, Tesco agreed to provide ‘retained pay’ (the Benefit) to those employees who agreed to relocate. 

The Benefit was incorporated into the relevant contracts of employment as an express contractual term of employment. The Benefit would “remain a permanent feature” of the employee’s contractual entitlement. Tesco had the contractual right to dismiss the relevant employees without cause on provision of specified notice. 

In 2021, Tesco wanted to end the Benefit. Tesco informed the relevant employees that if they did not consent to the removal of the Benefit they would be dismissed and offered re-engagement.  The terms of re-engagement would be identical save for the removal of the Benefit. 

Affected employees brought a claim seeking a declaration as to the meaning of the clause containing the Benefit and an injunction restraining Tesco from terminating their employment.  The High Court initially ruled in favour of the employees. Tesco appealed that decision to the Court of Appeal who found in favour of Tesco. That decision was subsequently appealed to the Supreme Court. 

Supreme Court decision 

The Supreme Court unanimously found in favour of the employees. It held that the contracts of employment contained an implied term that an employer’s right to terminate could not be exercised for the purpose of depriving an employee of their right to the Benefit. 

Reasons for the judgment 

Tesco’s argument was that the term containing the Benefit meant that the entitlement to the Benefit would be permanent for the duration of the contract. If Tesco exercised its right to dismiss the relevant employees, then the Benefit came to an end. The Supreme Court rejected that argument as it gave no substance to the express promise that the Benefit would be permanent. The correct interpretation of the clause was that the right to receive the Benefit would continue for as long as employment in the same role continued.   

The Supreme Court also held that Tesco’s right to terminate employment was qualified by an implied term that Tesco could not exercise that right for the purpose of depriving employees of the right to the Benefit. That implied term was necessary applying the test of business efficacy, alternatively it was so obvious that it goes without saying. The inclusion of the Benefit was an incentive for employees to undertake an otherwise unpalatable relocation. It was therefore inconceivable that the objective mutual intention of Tesco and the employees was that Tesco should retain a unilateral right to immediately dismiss those employees for the purpose of removing the right to the Benefit. The Supreme Court also held that the right to terminate is a contractual power. As such, there was no difficulty in implying a restriction on the purpose for which that power may be exercised when, as here, the restriction is necessary to prevent the purpose of a promise made in the contract from being defeated. 

The Court made clear that Tesco’s right to dismiss for any reason other than to remove the right to receive the Benefit remained entirely unaffected by this implied term.   

The Supreme Court noted that similar judicial findings had been made in cases concerning employment contracts providing for permanent health insurance benefits. In those cases an implied term had been found to exist which prevented an employer from dismissing an employee solely to deprive the employee of that benefits. 

Click here to read the full Judgement.