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Tesco PLC (LSE:TSCO) has faced a significant legal setback in the UK’s Supreme Court regarding its employment practices. The court ruled unanimously that Tesco's practice of laying off staff at certain distribution centers and rehiring them on lower pay violates employment terms.
The case, brought by the Union of Shop Distributive and Allied Workers, challenged Tesco’s decision to end its ‘retained pay’ scheme in 2021. This scheme had previously provided higher wages to workers who relocated from distribution centers that were closing. Following the scheme’s termination, Tesco proposed either a lump sum payment or the termination of existing contracts, with a rehire offer on the same terms but without the retained pay.
The union argued that this move breached the employees' contract terms. In 2022, the High Court ruled in favor of the union, confirming that Tesco’s actions violated the employment agreements. Tesco then appealed the decision, which led to the case being heard by the Supreme Court.
On Thursday, the Supreme Court's judgment affirmed the High Court's ruling. The court's five justices concluded that the employment contracts implicitly included a term preventing Tesco from terminating contracts to strip employees of their retained pay rights. The judgment stated: "The employment contracts contained a term implied by fact with the effect that the employer’s right to terminate could not be exercised for the purpose of depriving the employees of their right to retained pay."
This ruling is a significant blow to Tesco's employment strategy and reinforces the protection of workers' contractual rights. The decision highlights the court's stance on ensuring that employers cannot exploit contract termination to undermine previously agreed-upon pay terms. The outcome is expected to have implications for employment practices within the retail sector and beyond, reinforcing the need for fair treatment and adherence to contract terms.
