every little [bit of retained pay] helps

Employers generally adhere to the following process if they wish to vary their staff’s contracts in order to subject them to less favourable terms. First, they will justify the step as being for a sound business reason. Then, they will consult employees in the hope of getting consent to the variation. If consent isn’t given, contracts will be terminated. What may follow is a process of re-engagement whereby the sacked employees are re-employed on the less favourable terms they initially refused to accept. The employer could face an unfair dismissal claim as a result but they would be confident of demonstrating the termination fell into one of the categories for a potentially fair dismissal – the nebulous ‘some other substantial reason’ category.

In early 2021, Tesco followed the above procedure with some of their distribution centre staff and in early February 2022, the Union of Shop, Distributive and Allied Workers (USDAW) secured a remarkable injunction via the High Court to prevent them from doing so.

The story began in the late noughties when Tesco relocated various distribution centres during a period of expansion. As an incentive to encourage employees to relocate and take up jobs at these new sites, they were offered extra pay, described as ‘retained pay’. Employees were told this retained pay would be a ‘permanent feature’ of their contracts. Documents concurrent with the incentive revealed that Tesco saw retained pay as being ‘crucial’ to enabling them to ‘retain enough colleagues to avoid serious disruption to the wider business’.

Fast forward a decade or so, and Tesco, with their bottom line in mind, were keen to rid themselves of this obligation. In January 2021, they offered retained pay staff a lump sum payment of 18 months’ retained pay in return for relinquishing the entitlement. They said those who refused would be dismissed and re-engaged on the new terms. USDAW, which is recognised by Tesco for collective bargaining, applied to the High Court for an injunction to prevent Tesco terminating the affected contracts and thereby removing the entitlement to retained pay.

In granting the injunction, the High Court considered the use of the word ‘permanent’ in the context of the initial agreement. They said that, without context, ‘permanent’ could be read to mean merely ‘for as long as that particular contract endures’ which wouldn’t interfere with Tesco’s right to terminate. However, when taking into account the intention of both parties to the contract, ‘permanent’ would be construed to mean ‘for as long as the relevant employee is employed by Tesco in the same substantive role’. In other words, the staff on retained pay must stay on retained pay provided they continue working for Tesco in the same position. So, Tesco are not allowed to sack their retained pay staff if the intention of that sacking is to rid themselves of the obligation to pay the retained pay.

The case represents a win not just for the Tesco workers but for any workers who are entitled to ‘permanent contractual benefits’ in that, if their employer at any point tries to remove them, and threatens them with dismissal for not consenting, they can wave this very High Court judgment in their face to argue that the employer is not entitled to do that.

This post was written by Jack Dooley, Trainee Solicitor at didlaw.