The judgment overturns the Court of Appeal's decision in July 2022, which found in favour of Tesco. Instead, it agrees with the High Court judgment in February 2022 to grant an injunction to prevent Tesco from proceeding with a ‘Fire and Rehire’ exercise that removed workers’ right to a payment, known as ‘Retained Pay’, received under their contracts of employment.   

All five judges in the Supreme Court disagreed with the conclusions of the Court of Appeal.  

In the Leading Judgment from Lord Burrows and Lady Simler, it was held that the employees in question were employed under a contract with an express term providing for ‘Retained Pay’ on a permanent basis, which would subsist for as long as their employment in the same role continued.  

The Court identified that, as a consequence, the main issue was whether it needed to imply a term into the employment contracts that would restrict Tesco’s general right to terminate contracts with notice if the termination was to remove the employees’ entitlement to “permanent Retained Pay.”  

In other words, the Court had to decide if it was necessary to limit Tesco’s ability to dismiss employees specifically to avoid paying the ‘Retained Pay’ promised as a permanent benefit. The Court concluded that implying a term was necessary to prevent Tesco from terminating employment if the purpose was to remove the employees’ right to Retained Pay.   

In the leading judgment Lord Burrows and Lady Simler make clear: 

“We agree with the submission on behalf of the claimants that it is necessary, applying the business efficacy test, to imply a term in the contracts to qualify Tesco’s right to dismiss on notice so that it cannot be exercised for the purpose of depriving the claimants of their right to permanent retained pay. That implied term is necessary (or, alternatively, it is so obvious that it goes without saying) in order not to undermine the promise that retained pay would be a ‘permanent’ feature of contractual entitlements for the relevant employees (subject only to the qualifications specified by the retained pay term).” Paragraph 43 

This implied term was needed to uphold Tesco’s promise that Retained Pay would remain a permanent part of the employee’s contractual rights. By implying this term, the Court ensured that the original intentions of both parties at the time the agreement was made were honoured. 

The Supreme Court also concluded that the High Court had been right in February 2022 to grant an injunction to prevent Tesco from firing and rehiring the employees as damages would be an inadequate remedy.  

“In our view, damages would be an inadequate remedy in this case. To work out the quantum of damages would require speculation as to how long the employees would have otherwise remained employed by Tesco and, if they were to be lawfully dismissed, what their prospects would be of mitigating their loss by finding alternative employment. In short, the assessment of damages would be very difficult and prone to error. Moreover, it would be resource intensive and potentially costly (perhaps requiring expert labour market evidence). Of course, if there were no alternative, the courts would assess the damages as best they could in the light of the relevant evidence. But an injunction, amounting to indirect specific performance, avoids all such difficulties.” Paragraph 77 

Calculating appropriate damages would require speculation as to how long the employees would otherwise have remained employed by Tesco and their prospects for mitigating that loss.  

Furthermore, damages for wrongful dismissal would not compensate for the distress caused by losing a job. On that basis, an injunction was appropriate to prevent Tesco from dismissing the employees in question, given that the reason was to deprive them of their right to ‘Retained Pay’.  

Neil Todd, a partner in the trade union law group at Thompsons Solicitors, said:  

This is a fantastic judgment for Usdaw and the members concerned. Those in receipt of Retained Pay were promised unequivocally that they would be afforded a permanent benefit under their employment contract if they agreed to remain with the business and support it when it needed them most.  

“They were then threatened with ‘Fire and Rehire’ when Tesco considered that the benefit had served its purpose. This decision illustrates that a court will intervene to give effect to the parties’ intentions when entering into a contract. It also demonstrates that a right to an injunction is available regarding a breach of contract of employment when damages are not an adequate remedy, as was the case here.  

“The injunction will prevent this important right from being stripped away. The litigation has been hard fought, but we are delighted to achieve an outcome that we consider just in all circumstances.” 

Paddy Lillis, Usdaw General Secretary, said: 

“Usdaw has been determined to stand by its members in receipt of this valuable benefit that constituted a key component of their pay. We recognised that they had been afforded this payment because of their willingness to serve the business, and it was on that basis that we agreed with Tesco that it should be a permanent right.  

“When we said permanent, we meant just that. We were therefore appalled when Tesco threatened these individuals with fire and rehire to remove this benefit. These sorts of tactics have no place in industrial relations, so we felt we had to act to protect those concerned. We were very disappointed with the outcome in the Court of Appeal but always felt we had to see this case through.  

“We are therefore delighted to get this outcome, which is a win for the trade union movement as a whole.  

Background 

Retained Pay refers to a contractual benefit provided to employees who agreed to relocate to new sites as part of Tesco’s restructuring efforts. As part of an expansion programme, Tesco closed some of its existing distribution centres and opened new ones. Where particular sites were closing, employees stood to be made redundant.  

However, to incentivise some staff to stay with the business, Tesco entered into a collective agreement with Usdaw that provided that anyone who chose to relocate to work in one of the new distribution centres would receive an additional payment known as “Retained Pay.”  

Tesco entered into this arrangement as it needed to retain the skills of existing staff at a critical time for the business rather than seeing them all leave on the grounds of redundancy.  The collective agreement made it expressly clear that Retained Pay would be a permanent feature of an individual’s contractual entitlement and would continue as long as the employee remained in the same role and subject to conditions like mutual consent for changes, cessation upon promotion, or adjustments due to shift changes. 

By 2021, Tesco had decided to stop paying Retained Pay and informed Usdaw that it wanted to phase the arrangement out. To do that, employees were offered a lump sum payment for giving up their right to Retained Pay.  

Anyone who refused to accept this lump sum payment was warned they would be subject to ‘Fire and Rehire’. In other words, their existing contract would be terminated, and they would be re-engaged on precisely the same terms, except that the Retained Pay element of their wages would be removed.   

Several Usdaw members did not want to forego their right to Retained Pay, given it made up a significant proportion of their salary. On this basis, Usdaw applied for an injunction to prevent Tesco from carrying out a fire and rehire exercise. In February 2022, the High Court granted that injunction, preventing Tesco from dismissing all unwilling to give up their right to Retained Pay and accept the buyout. The court ruled that an implied term prevented Tesco from serving notice to terminate the contracts when its purpose was to remove the right to Retained Pay. 

However, in July 2022, the Court of Appeal overturned this decision, stating that Tesco retained the right to terminate employment contracts by serving notice in the ordinary way, and the entitlement to Retained Pay ended when those contracts ended. 

The full judgment can be found on the Supreme Court website or downloaded here.