The UK Supreme Court’s recent ruling in the Tesco case has placed fresh scrutiny on the controversial practice of “fire and rehire,” where employers terminate an employee’s contract and offer to rehire them under less favourable terms. As businesses face ongoing economic challenges, this decision has significant implications for both employers and employees.

What is Fire and Rehire?

Fire and rehire has been used by employers, particularly during times of financial difficulty, to revise employment terms. While it allows companies to adjust to economic changes, it’s often criticised for undermining job security. The Tesco case is a major example of how the courts are now addressing these practices. The ruling could signal a new era for how UK law approaches contractual obligations.

The Tesco Case: A Key Ruling

In 2007, Tesco introduced “retained pay” to incentivise employees to relocate to new distribution centres, promising this benefit as a “permanent” feature of their contracts. However, in 2021, Tesco sought to remove the benefit by threatening to fire workers and rehire them on new contracts without retained pay.

In September 2024, the UK Supreme Court ruled that Tesco could not use fire and rehire to eliminate this long-term benefit, sending a clear message about the limits of this practice.

What does this mean?

The ruling has several implications for employers:

• Binding Commitments: Courts may now treat long-term benefits promised as “permanent” as binding, restricting employers’ ability to revoke them.
• Contract Precision: Employers must be cautious when drafting contracts. Clear, precise terms are essential to avoid future disputes.
• Limits on Fire and Rehire: The Tesco ruling restricts the use of fire and rehire to remove key benefits. Employers must explore alternative strategies to make changes without violating contractual commitments.

A Win for Employees

For employees, this ruling offers stronger protections. Contractual benefits deemed “permanent” are now harder to remove, providing increased job security. The decision may also give employees more leverage when negotiating contract changes, as courts are showing greater willingness to protect workers’ rights.

The Future of Employment Law

The Tesco ruling marks a shift in how fire and rehire practices are viewed by the courts. This could lead to further legal reforms that limit the use of such tactics. Employers should be prepared for more scrutiny and potential legislative changes that could impose additional restrictions.

Navigating Change: The Role of Intelligent Payroll

As employment law continues to evolve, it’s vital for employers to stay informed and proactive. At Intelligent Payroll, we recommend that businesses:

• Review Contracts: Ensure all long-term commitments are legally sound and clearly defined.
• Consider Alternatives: Explore options beyond fire and rehire, such as negotiating mutually beneficial changes.
• Consult Experts: Seek guidance from legal and payroll professionals before making significant contractual changes.

Looking Ahead

The Tesco case may be a catalyst for change in employment law. Employers that prioritise transparent, fair practices will be better positioned to navigate these evolving legal challenges while maintaining positive employee relationships. At Intelligent Payroll, we’re here to help you adapt and thrive in this changing landscape.