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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.