Is it the end for fire and rehire?

A group of employees from a national supermarket have been granted an injunction preventing their employer from using a ‘fire and rehire’ strategy to force through the removal of a significant retention payment which had been agreed over 20 years' ago.

Employers sometimes use the fire and rehire process to secure changes to terms of employment when employees refuse to agree to a proposed contractual change. The contract is usually terminated with notice, leaving employees’ only remedy to claim unfair dismissal if they have two years' continuous employment. The practice has garnered significant criticism from Unions and the Government has considered legislation to prohibit it.

In this case, in the late 90s, the supermarket agreed with the employees' union, USDAW, to permanently ring fence a retention payment for a group of employees in return for their agreement to relocate to suit their employer’s commercial distribution strategy. The retention payment was significant (about a third of the employees' annual pay) and it was agreed that it would be permanent – it would never be removed unless the employee was promoted or changed role.

After 20 or so years, the supermarket decided the retention payment should no longer be paid as new employees didn't receive it and its purpose had now passed. The supermarket gave affected employees three weeks to consider a proposal to agree to new terms under which the retention payment would be removed. If they refused the change, the supermarket proposed to dismiss them and re-employ them on the new terms.

USDAW, as a recognised trades union for the impacted employees, sought an injunction from the court preventing the supermarket from doing this. Several legal arguments were put forward, primarily concerning the interpretation of the original contractual terms of the retention payment and the law of unfair dismissal. The supermarket argued it was entitled to terminate the contract of employment with notice, with its employees’ remedy being an unfair dismissal claim.

USDAW argued that terminating the contract would be a breach of the agreement that had been negotiated. The retention payment was a permanent change which could only be removed in certain circumstances. The context in which it had been agreed should be implied into the circumstances in which supermarket could terminate the contract.

The court agreed and granted an injunction preventing the supermarket from serving notice to terminate the contracts of employment. At the time the employer agreed the retention payment, it gained a considerable commercial benefit from relocating the distribution employees and it was always agreed that the retention payment would be a permanent change.

Whilst the case concerns an unusual set of facts, it may lead to employees relying on this decision to create uncertainty for employers seeking to apply a fire and rehire strategy. It's not the end for fire and rehire as a strategy, but it means legal advice should be taken both before considering it as an option and on the approach to take.

If you have any queries or would like further information, please contact Charlie Barnes.