Recent developments in employment law: two Supreme Court decisions which look beyond the contract of employment

2024 continues to be a landmark year for employment law. Recently, we wrote about the Labour Government’s major proposals for employment reform, and earlier this month we saw two separate decisions from the UK’s most senior court on fire and rehire and employment status. In both decisions, the Supreme Court considered the impact of documents outside of an employment contract on an employer’s powers and relationships. 

In this blog, we set out a brief explanation of those two decisions and the sort of ancillary documents produced by employers which have the potential to have unintended consequences.

Historic promises preventing dismissal

In Tesco Stores Ltd -v- USDAW, the Supreme Court considered an attempt by Tesco to dismiss a number of distribution centre workers and re-engage them on terms which were more favourable to the company.   

During a previous reorganisation, to avoid losing experienced workers, Tesco agreed with the relevant trade union that those workers would receive a monthly “retained pay” payment, in addition to their standard pay. By 2021, this amounted to over 30 per cent of the wages of the relevant workers. Tesco wanted to bring this retained pay arrangement to an end and, following an unsuccessful negotiation, gave the workers notice they would be dismissed in accordance with the notice period in their contracts. They were offered re-engagement on new terms which excluded retained pay.

Unusually, the workers applied for and were granted an injunction which prohibited Tesco from dismissing them on the intended grounds. Tesco appealed, and the case made it to the Supreme Court.

Promises beyond the contract

The Supreme Court decided that even though the contract expressly allowed Tesco to dismiss the workers on notice, a further term should be “implied” into the contract, that they could not exercise this power for the purpose of removing the right to retained pay. In reaching this decision the Court drew on a series of pre-contractual documents, including a statement Tesco had provided to the workers during negotiations, which stated that retained pay would be protected “for life” and that the right to retained pay could not be negotiated away by Tesco or USDAW. 

Even though the same wording was not expressly stated in the workers’ contracts, the Court was willing to rely on it as evidence when objectively assessing what the parties’ intentions were when entering into the contract in the first place.

Key considerations

It is extremely unusual for the courts to order an injunction preventing an employer from dismissing its staff, rather than simply requiring it to pay damages if it does so unlawfully. 

While this will remain unusual for most employers, the case serves as a reminder to employers to be mindful if they are looking to terminate employment to mitigate the commercial impact of a previous agreement. In particular, this case highlights the relevance that pre-contractual negotiations can have in determining how contractual terms are actually interpreted. Employers should take care to ensure that any such communications are carefully handled to avoid inadvertently providing workers with additional rights and should consider, for example, including qualifications about the extent of benefits offered.

Although this case centred on a ‘fire and rehire’ situation, given the unusual facts, it is unlikely to have a significant impact on such practices more widely. We are, however, expecting to see restrictions on the use of fire and rehire included in the Government’s Employment Rights Bill, which is likely to be published early in October (as explained here).   In the meantime, employers are reminded of the updated Acas Code of practice on dismissal and re-engagement, which is now in force (see our blog for further details).

“Framework of control” and additional guidance documents

The second recent decision of the Supreme Court, in HMRC -v- PGMOL, concerned the employment status of a group of professional football referees and the resulting tax liabilities on their employer.

The referees in this case were not employed full time by PGMOL, often refereeing in their spare time alongside other full-time employment or occupations. Referees would be offered employment for a specific match, and an individual contract formed when they accepted that appointment. The Court had to decide whether this could potentially make them “employees” in the technical legal sense, requiring PGMOL to withhold income tax and national insurance contributions from their pay. 

We have previously explained here the importance and impact of seemingly casual staff being found to be “employees” or “workers”. 

Considering “all the surrounding circumstances”

In deciding that it was possible (pending re-assessment by the Tribunal) for referees in this situation to be “employees”, the Court considered a range of factors to identify the reality of the various obligations on referees when they provided their services for an individual match. One of these considerations was a set of documents (separate to the contract) provided to the referees by PGMOL. These “pre-season” documents included a code of conduct, procedures to follow on match days (breach of which could be sanctioned) and a fitness protocol. Whilst not determinative, these additional documents were considered by the Court to be significant in deciding whether the PGMOL could exercise a sufficient “framework of control” over the referees. 

Key considerations

Following this case, employers are reminded that the written terms of a contract will not be conclusive as to employment status. Instead, the courts will be willing to look at all the surrounding circumstances and other communication with staff in deciding their status.

We expect this case could be of particular importance for employers in industries which commonly engage guest or casual staff to do ad hoc pieces of work, such as organisations in the ‘gig economy’ or sectors where there are fluctuations in work levels. Any such organisation will need to ensure they are clear on the substance of the agreements. 

Employment status is another area where the Government has announced its intention to make reforms. In its Plan to Make Work Pay, the Government has committed to moving towards a single status of worker, combining employee and worker into a single category and moving to a two-part framework for employment status. This is certainly a proposal to watch, since it would lead to an increase in worker protections and so represent a significant shift from our existing status model.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, September 2024