Supreme Court blocks fire and re-hire of Tesco warehouse staff

Last month’s Supreme Court ruling in the dispute over the "retained pay" of three Tesco warehouse workers starts as follows:

"Standing back from the details of this case, it may be said that the claimants are seeking to establish that they fall within rare exceptions to two fundamental common law principles that are generally applicable in the realm of contracts of employment. The first is that an employer generally has the right, under contract law, to terminate a contract of employment by giving the requisite notice to the employee. The second is that an injunction, amounting to indirect specific performance, will generally not be ordered against an employer that, in substance, requires the employer to continue employing an employee."

It is worth putting the ruling in that context - a doubly "rare" case, though, as the Supreme Court points out, not without precedent. Nonetheless, it is significant that the Supreme Court has overturned the Court of Appeal and restored the ruling of the High Court which held Tesco to their promise that the workers' retained pay would be "permanent". The outcome means that Tesco are unable to use "fire and re-hire" to remove their entitlement to retained pay, though they are still able to use their contractual power to dismiss for other reasons (eg poor performance, capability or redundancy).

So how rare is it for a Court to prevent an employer operating an express term (which is found in almost all employment contracts) to dismiss on giving a defined period of notice? The best-known examples have involved permanent health insurance schemes. In cases where an employee has been promised the protection of the scheme until retirement age, the Courts have ruled that employers cannot use their contractual power to dismiss for the sole purpose of depriving the employee of the benefits of the scheme.

Such cases have been rarer since employers became wise to the risk of promising benefits on a “permanent basis”. This case is a reminder that the courts will continue to be alert to any other instances where there is a clear conflict between what the employee has been expressly promised in the contract and a general power to dismiss on notice.