The Employment Rights Bill currently before Parliament will make it automatically unfair to dismiss an employee for refusing to agree to a variation of their contract. Recently, the Supreme Court considered this issue in a case involving a supermarket that sought to end its employees’ right to an ongoing pay uplift. The Court also considered whether an exception should be made to the general rule that an injunction will not be ordered requiring an employer to continue employing an employee (Tesco Stores Ltd v Union of Shop, Distributive and Allied Workers and Others).

In 2007, the supermarket had embarked on an expansion programme that resulted in the closure of certain distribution centres. Affected employees were offered ‘retained pay’, an ongoing uplift to their pay, as an incentive to relocate. A collective agreement negotiated in 2010 stated that retained pay was ‘a permanent feature of an individual’s contractual eligibility’ which could only be changed by mutual consent.

By 2021 the supermarket wished to end the retained pay arrangement. It offered the relevant employees 18 months’ retained pay to agree to forfeit their retained pay rights. If they refused, they would be dismissed and re-engaged on the same terms but without retained pay. The employees’ trade union brought High Court proceedings seeking to preserve the employees’ right to retained pay.

The Court observed that there was a conflict between the employees’ permanent entitlement to retained pay and the supermarket’s right to terminate their contracts on notice. To resolve that conflict, a term should be implied into the contracts to the effect that the supermarket’s right to terminate them could not be exercised for the purpose of removing the entitlement to retained pay. Concluding that damages would be an inadequate remedy, the Court ordered an injunction whereby the supermarket could not terminate the contracts for the purpose of removing or reducing retained pay.

The supermarket appealed to the Court of Appeal. Upholding the appeal, the Court found that entitlement to retained pay only lasted as long as the particular contract. Even if the High Court had been right on the issue of liability, an injunction could not be justified. The trade union made a further appeal to the Supreme Court.

The Court noted that, if the right to retained pay only lasted as long as the specific contract, the word ‘permanent’ would have no meaning. While the promise of retained pay was not a promise of permanent employment, employees would not reasonably expect to be at greater risk of having their employment terminated because they were entitled to retained pay. The Court agreed that the implied term that the employees could not be dismissed in order to deprive them of retained pay was necessary to give effect to that promise.

Turning to the question of whether the supermarket could be obliged to continue employing the employees on retained pay, the Court observed that there had been no breakdown of confidence, as evidenced by the fact that the employees had been offered new contracts. Concluding that damages would be an inadequate remedy, the Court found that calculating damages would require speculation as to how long the employees would have remained employed and to what extent they could mitigate their loss by finding alternative work. Damages would also not reflect non-pecuniary losses such as loss of job satisfaction. The injunction granted by the High Court was reinstated.