Restructuring - Avoiding the pitfalls of "fire and rehire" strategy
posted 4th March 2022
Businesses that are carrying out a restructure or reorganisation and intend to offer a benefit or extra remuneration to retain employees, should ensure that any variation to contractual terms is clear and allows for flexibility. In addition, any business going through a merger or acquisition, should take extra caution when it comes to varying terms or reviewing terms previously agreed by the business being acquired.
Tesco - a case study
In 2010, following a reorganisation, in order to retain employees who had been relocated to different distribution centres so as to avoid redundancies, Tesco Stores Ltd entered into a collective agreement for Retained Pay to protect the affected employees' pay packages against the less favourable terms at the new sites.
The agreement was made a permanent feature of the employee's contracts of employment.
In January 2021 the supermarket announced its intention to remove the Retained Pay, offering a lump sum of 18 months' Retained Pay in advance. Those who did not agree were to be dismissed and offered new terms which excluded the Retained Pay.
In February 2022 the High Court granted an injunction restraining Tesco from terminating and re-engaging those employees who did not agree to the variation.
In this case, the Court found that there was an implied term that Tesco could not exercise its right to fire and rehire on the basis that the Retained Pay was a term intended to be a permanent part of the employees' contract, essentially for as long as the relevant employee was to be employed by Tesco in their substantive role.
Key learning points for employers
This Court decision is a reminder to businesses to give careful consideration as to how to communicate contractual changes.
It is crucial to remember that the decision to fire and rehire should be regarded as a last resort because opens the business to the risk of a legal dispute and affects employee engagement and talent retention.
Additionally, if TUPE applies when a business is going through either a merger or acquisition any variation of contractual terms will be void if the transfer is the sole or principal reason for the change.
Need advice?
At GS Verde, we can offer you assistance on drafting of varying contractual terms, advising on how to incorporate variation to contractual terms and consulting with employees, reviewing contracts of employment and due diligence.
If you have any queries about this or would like to assistance with any of the information set out above, please contact our Employment and HR Team. For a no-obligation quote, use our online 'Get a Quote' service on https://www.gsverde.law/get-a-quote
