Background:

In 2007 the employer closed some distribution centres and opened new ones some distance away.  To persuade staff to relocate there was ‘retained pay’ given which was negotiated with the claimant Trade Union.   The joint statement stated it was ‘guaranteed for life’ and would increase with future pay increases. It was expressed in the contract of employment that it would be permanent subject to change by mutual consent, promotion/cessation of the role, a change to work patterns but would not be subject to change if there was a change made by the employer to shift patterns.

In 2021 the employer announced it would be removing the retained pay and asked employees to agree to an advance payment of 18 months’ retained pay. Some refused whereupon they were told that they would not get the advanced pay, and their contracts would be terminated with offers of re-engagement on terms not including the retained pay.  The issue was whether this was permissible in law.

Outcome:

The High Court, at first instance, declared that it would be unlawful citing that as it was permanent the eligibility remained, and the termination could not be used for the purpose of removing the right.  The Court of Appeal reversed the decision holding that despite it being noted as ‘permanent’ it did not prevent the employer from terminating the contracts and re-engaging without the retained pay. There was nothing within the contracts to prevent the employer from giving notice to terminate the contracts and there was no evidence that the overall contract would continue for life.

The Trade Union appealed this to the Supreme Court.  It was held that the terms agreed had to be interpreted in context and objectively.   Tesco argued that the retained pay term was only permanent for the duration of the contract and was subject to the unqualified right to terminate.   However, it was held that the argument gave no substance to the meaning of permanent and that it conveyed that the right was not time limited.  This had to be considered in terms of an implied term by fact which qualified the employer’s right to terminate the contract on notice to deprive the right to retained pay.

The Supreme Court held that, as a matter of business efficacy, there was an implied term which qualified the right of the employer to dismiss on notice for the purpose of removing the right to retained pay. The offer in 2007 was intended to induce employees and they accepted that.  The employer benefited from this by having experienced employees relocate. As a result, it was inconceivable that there also existed a right for the employer to unilaterally terminate the contracts to remove that ‘permanent’ right.  Accordingly, the injunction awarded by the High Court at first instance was reinstated.

Practical Guidance for Employers:

This case provides a useful examination of contractual terms and interpretation.  The use of implied terms alongside the express term giving the retained pay provides protection for the employees.  This arises by limiting the right to terminate the contract which seemed to be unfettered within the express terms of the contract.   The reasoning was to give business efficacy and in large part to ensure that there was fairness in the bargain struck.   Accordingly, employers should be aware of operating this type of ‘switcheroo’ to avoid agreements that they have struck previously especially when they labelled those agreements as ‘permanent’.

https://www.supremecourt.uk/cases/uksc-2022-0133.html