Fifteen years ago, Tesco planned an expansion and restructuring of its distribution network which involved closure of sites and reopening of others.

Keen not to lose experienced staff in the process, Tesco offered certain employees a contractual enhanced payment known as “Retained Pay” as a retention incentive. This entitlement was negotiated with Union of Shop, Distributive and Allied Workers, the trade union recognised by Tesco for collective bargaining purposes.

The Retained Pay was to remain a “permanent feature” of the relevant individual’s contract and was “guaranteed for life” according to a joint statement issued by Tesco and the Union.

Fast forward more than a decade later, Tesco wanted to bring Retained Pay to an end.

In the absence of employees expressly agreeing to the exclusion of the Retained Pay clause from their contract, Tesco intended to terminate the contract and offer re-engagement on different terms.

However, the Union successfully applied to the High Court for an injunction preventing Tesco from doing so. The High Court also granted a declaration that the affected contracts were subject to an implied term which prevented Tesco from exercising its contractual right to terminate for the purpose of removing the employee's right to Retained Pay.

Overturning the decision of the High Court, the Court of Appeal held there was nothing in the wording of the Retained Pay provisions and no implied term preventing Tesco from giving notice to terminate the affected contracts.

The Court of Appeal's principal difficulty, with the implied term argument, was that the meaning of “permanent” and “guaranteed for life” in the pre-contractual statements was not itself sufficiently clear to know what term was to be implied. Moreover the Union had not overcome the obviousness element of the implied term test (not least because Tesco would have held a different view) and the proposed implied term was inconsistent with the express terms.

The Court of Appeal held that the injunction, which would in effect prevent a private sector employer from dismissing an employee from an indefinite period, was unjustified.

The Court of Appeal’s judgment may not bring finality to the matter, with the Union having already indicated its desire to challenge the decision before the Supreme Court. Employers should, however, remain vigilant to the potential backlash associated with the practice of “firing and rehiring” to implement contractual change – both in a legal and reputational sense.

Judgment: Union of Shop, Distributive and Allied Workers v Tesco