End of fire and rehire?

THIS HAS relevance to the warehousing sector. As recently as September 2024, warehouse workers won a Supreme Court ruling against the use of the practice by grocer Tesco.

Workers at Daventry and Lichfield distribution centres fired and rehired on lower pay by Tesco in 2021 won their legal battle with the grocer.

Trade union Usdaw took the case to the Supreme Court after Tesco appealed against a High Court ruling in the union’s favour in 2022. Five Supreme Court justices ruling unanimously that Tesco should be blocked from dismissing the staff.

The case arose after Tesco planned to close some of its distribution centres in 2007 and offered staff ‘retained pay’ for them to relocate. In 2021, the chain wished to bring ‘retained pay’ to an end and told staff that the enhancement would be removed in return for a lump sum, or their contracts would be terminated and then reoffered on the same terms, but without the increased salary. Usdaw argued that ‘retained pay’ was described as ‘permanent’ in the staff’s contracts, meaning it could not be removed.

Usdaw general secretary Paddy Lillis, says: “We recognised that workers 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. We were therefore appalled when Tesco threatened these individuals with fire and rehire to remove this benefit.”

However, legal experts cautioned against reading lessons into this outcome, as the promises made by Tesco to its employees at its distribution restructuring in 2007 were exceptional. 

Littleton Chambers barrister Benjamin Gray, says: “Those looking to extract a wider principle that “fire and rehire” is not possible where it affects an employee’s pay are likely to be disappointed.

“The Supreme Court was clear that this was not a case involving the ordinary wage-work bargain, and what distinguishes the Retained Pay clause is the additional wording about its permanent nature.”

This brings us to Labour’s Employment Rights Bill, which is currently being debated in the House of Commons.

Fire and rehire is lawful, although the P&O Ferries scandal, which saw the firing of 800 workers in 2022, highlights reputational risk.

In response, a new Code of Practice was introduced by the last government, which emphasised that fire and rehire should only be used as a ‘last resort’. The new bill could strength this with binding legal obligations and could make it much more difficult for employers to use this ‘nuclear option’, unless it can prove, for example, that an existential threat to the business is at play.

Lewis Silkin partner David Hopper, however, warns the bill could have negative impacts on the workers the legislation is seeking to protect.

“There is a real risk that measures which appear to have been driven by a small number of extreme but high-profile examples (such as P&O Ferries) will have far-reaching, unintended consequences.

“It is plausible that the new protections will actually result in more redundancies, where it would currently be possible to avoid job losses through changes to terms and conditions. In addition, employers may increasingly seek to use pay increases as a strategic ‘bargaining chip’.”

It remains unclear when these reforms will come into effect, though it seems most likely that they will be implemented at some point in 2026.

Hopper continues: “In the meantime, any use of fire and rehire by employers is likely to carry greater reputational risks than ever. However, businesses which are currently considering potential changes to contractual terms that are unlikely to attract employee consent may nonetheless wish to consider whether to do so sooner rather than later, during the limited window in which dismissal and re-engagement still remains a potential option.”