The Supreme Court has blocked supermarket giant Tesco from being able to fire and rehire a group of distribution centre employees by restoring an injunction over a contract dispute.

Five justices today unanimously allowed the appeal in Tesco stores limited v Union of Shop Distributive and Allied Workers and others bought by the Union of Shop, Distributive and Allied Workers (Usdaw) and others. The case centred on the supermarket’s plan to terminate employees’ contracts for the specific purpose of depriving them of ‘retained pay’, a contractual entitlement which was agreed to be permanent for the duration of their contract.

Retained pay was negotiated by representatives of Usdaw and Tesco as an incentive to staff who worked at distribution centres closed in 2007 to relocate to another site. The retained pay incentive was negotiated as an alternative to a lump sum redundancy payment. Tesco agreed to ‘ensure that it did not lose all of its existing experienced employees through redundancy at a critical time when it was expanding and opening new distribution centres’.

The individual claimants were granted retained pay, which constituted around 32-39% of their wages, from the time they relocated to the new site in September 2007. In 2021, Tesco formally announced its intention to remove retained pay, stating the arrangements had 'achieved what they were designed to achieve’.

Employees on retained pay were offered an advance payment of 18 months of retained pay to agree the termination of their rights and were told if they did not agree they would be ‘fired and rehired’. The individual claimants, and others, refused and issued proceedings in the High Court. Their claims succeeded, but the High Court decision was overturned by the Court of Appeal before reaching the Supreme Court.

In lead judgment today, Lord Burrows and Lady Simler, with whom Lord Lloyd-Jones agreed, said the ‘mutual objective intention’ of the agreed retained pay ‘was to preserve the higher retained pay offered because Tesco needed experienced employees to relocate and wished to retain them in employment at the new sites and, without the inducement offered, relocation would not have been palatable to employees’.

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The judgment said: ‘It would have been open to Tesco to negotiate a longstop date for the entitlement to retained pay or to make clear that the retained pay could be withdrawn if an employee were dismissed with notice and then re-employed in the same role. Neither was done.’

Termination of employees’ contracts for any purpose unrelated to depriving employees of retained pay remained open to Tesco ‘as a matter of managerial discretion’.

Considering remedy, the judges said damages would be an ‘inadequate remedy’ as it would be ‘very difficult…prone to error…resource intensive and potentially costly’ but ‘an injunction, amounting to indirect specific performance, avoids all such difficulties’. The court thus reinstated the injunction granted in the High Court by Mrs Justice Ellenbogen. Lord Leggatt gave a concurring judgment as did Lord Reed.

A Tesco spokesperson said: ‘We accept the Supreme Court’s judgment. Our colleagues in our distribution centres play a really critical role in helping us to serve our customers and we value all their hard work. Our objective in this has always been to ensure fairness across all our DC colleagues.

‘Today’s judgment relates to a contractual dispute brought on behalf of a very small number of colleagues in our UK distribution network who receive a supplement to their pay. This supplement was offered many years ago as an incentive to retain certain colleagues and the vast majority of our distribution colleagues today do not receive this top up.

’In 2021, we took the decision to phase it out. We made a competitive offer to affected colleagues at that time, and many of them chose to accept this. Our aim has always been to engage constructively with Usdaw and the small number of colleagues affected.’

Neil Todd, partner in the trade union law group at Thompsons Solicitors, said: ‘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. 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. These sorts of tactics have no place in industrial relations, so we felt we had to act to protect those concerned. We are delighted to get this outcome, which is a win for the trade union movement as a whole.’

 

Oliver Segal KC and Stuart Brittenden KC, instructed by Thompsons Solicitors (Manchester) appeared for USDAW and others; Anthony de Garr Robinson KC, Amy Rogers KC and Andrew McLeod, instructed by Freshfields Bruckhaus Deringer, appeared for Tesco.

 

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