The practice of terminating an individual’s employment to re-employ them on new terms (known as ‘fire and re-hire’) has always been controversial. This is because it is typically used to implement unfavourable changes to employees’ contracts.

The Government is tightening up on such practices, and in July, issued a fire and re-hire code of practice which made it clear fire and re-hire should only be used in very limited circumstances. Now, the Supreme Court has granted an injunction to prevent Tesco from firing and re-engaging employees on lower compensation.

In 2007, Tesco inserted a clause into its contracts which provided for retention payment awards as an incentive for employees to relocate to other sites following the closure of distribution centres. In 2021, Tesco attempted to remove this clause and threatened anyone who did not agree with the termination of their employment. Consequently, the Union of Shop, Distributive and Allied Workers (USDAW) brought action against Tesco seeking an injunction to prevent the termination of the contracts, arguing the 2007 change was intended to be permanent. USDAW won an injunction in 2022 which stopped Tesco from carrying out its plans, but Tesco got that ruling overturned on appeal.

On 12 September 2024, the Supreme Court reversed that decision. Commenting that the individuals had been induced to make significant and permanent changes to their lives by relocating, the Judges made it clear that any limitation to the change should have been negotiated in 2007.

Employers may be concerned that this decision significantly narrows when fire and re-hire can be used. They may also be concerned that it sets a precedent for injunctive relief to be granted to protect employees from dismissal, which is rare. However, cases like these are fact-specific: the injunction was granted in a case where the affected individuals made a life-changing move in return for compensation during the performance of the contract – and it was not specified at the relevant time that the additional compensation could be taken away.

The Government has previously indicated that it intends to ban fire and re-hire, and following this judgment, the Department for Business and Trade has stated that new legislation shall be brought in soon. In the meantime, there are occasions where the use of fire and re-hire could still be appropriate, particularly if the alternatives are for employees to be retained on terms which significantly damage the business, or risks mass redundancies, or even for a business to cease trading entirely. The Tesco matter was different and was a situation which was said to be “unrealistic” and “flouting industrial common sense”.  However, it does highlight how careful employers must be when agreeing contractual variations, and, in particular, how employers ought to carefully consider the duration of any proposed changes.

If you have any question about the drafting or varying of employment terms and any related issues, please contact a member of our Employment team.

Solicitor Becci Collins comments on the government’s proposed reforms surrounding ‘fire and rehire’ practices, redundancy rights and TUPE considerations, in People Management magazine.

Becci’s comments were published in People Management, 11 September 2024, and can be found here.

“The government has not implemented a complete ban on fire and rehire, as it originally pledged to do. Instead, it has made it clear that terminating employment before re-engaging an individual on different terms is the last resort. This requires an employer to ensure that it has taken all reasonable alternatives and reached an agreed outcome with affected individuals.

“A failure to comply with this requirement could provide grounds for unfair dismissal claims, which may cause reputational damage as well as adverse implications on employee relations. A further extension to a complete ban would put employers in a very uncomfortable position should the business get into financial difficulty. Instead of being able to retain its workforce on different terms, the business would be forced to consider redundancy in order to ensure its survival.

“Whilst the government has stated that it intends to strengthen TUPE protections, further detail has yet to be provided. The previous Conservative government confirmed that only employees are protected by the TUPE provision in response to case law which cast doubt on this. The current Labour government has indicated that it will take the opposite approach and extend the protection to those currently classed as workers by creating a single worker status, encompassing the current status of employee and worker.

“Extending the number of individuals protected by TUPE would increase the amount of work – and therefore time and costs – for employers, which may act as a deterrent. It may also increase the responsibilities a business assumes through the TUPE process, as any liabilities (potentially including litigation), may be transferred, although contractual indemnities could prevent this.

“The Labour government has proposed extending the requirement on when a collection consultation is required in redundancy to instances where 20 people will be impacted across the business, not just one workplace. This proposal would widen the number of individuals entitled to collective consultation.

“Further, earlier in the year, redundancy protection was expanded for those returning from maternity or adoption leave. They are to be offered suitable alternative employment ahead of other individuals at risk. However, where shared parental leave is taken, individuals are only protected for the period of their maternity or adoption leave. We may see the new government extend protections to cover this additional period of leave.

“Employers will need to ensure that their policies reflect these extended protections and be aware that failure to account for the expansion may result in a costly unfair dismissal and/or discrimination claim.”