Union of Shop, Distributive and Allied Workers & Ors. v Tesco Stores Ltd

Tesco argue as follows:-

“a.

The Judge (correctly) found that the Contracts contained:

i.

an express term that Retained Pay “will remain a ‘permanent’ feature of an individual’s contractual eligibility subject to the following principles: i) retained pay can only be changed by mutual consent; ii) on promotion to a new role it will cease; iii) when an individual requests a change to working patterns, such as nights to days, the premium payment element will be adjusted; and iv) if the Defendant makes shift changes, it will not be subject to change or adjustment” (Judgment, paragraph 37.1);

ii.

an express term as to notice, whereby (so far as material) the specified notice will be given if the Defendant terminates his or her employment other than in the event of gross misconduct (Judgment, paragraph 37.2).

b.

The Judge then (again, correctly) identified that the use of the word “permanent” in relation to Retained Pay might be considered to “confer an entitlement which is permanent for as long as the particular contract endures” (Judgment, paragraph 39);

c.

The Judge then rejected such a construction for the reasons set out at Judgment, paragraph 40. In particular, she concluded that “the mutual intention of the parties was that the entitlement to Retained Pay would be permanent for as long as each affected employee was employed in a particular role” and that there was “no other way of making sense of expressions such as “guaranteed/protection for life” or “for as long as you are employed by Tesco in your current role.”

d.

In fact, there was a very clear and straightforward way of “making sense” of the expressions to which the Judge referred – the Judge herself in the same paragraph identified that the word “permanent” was used in a context in which Retained Pay was to be a permanent feature of an “individual’s contractual eligibility” in order to “remove the entitlement to Retained Pay from the collective bargaining machinery which would otherwise admit of the prospect that it could be removed by the will of a majority who did not benefit from it.”

e.

The Judge then contradicted herself later in her judgment (at paragraph 45) in stating that references to “permanence” would be “deprived of any meaning and thus superfluous” if the construction for which the Appellant/Defendant contended were correct. The Appellant/Defendant’s construction had been set out by the Judge at paragraph 27 of her Judgment and was on the face of it accepted by her at paragraph 40 where she acknowledged that it was the intention of the parties to take Retained Pay permanently out of the scope of collective bargaining. The Judge was therefore in error to conclude that the references to permanence which she had apparently accepted were superfluous on the Appellant's/Defendant's construction;

f.

The Judge erred (at Judgment, paragraph 40) in concluding that there was an “inherent conflict” between the express terms of the Contracts “in circumstances in which a fresh contract will be offered” which will confer no entitlement to Retained Pay. In concluding that the “inherent conflict” arose in circumstances in which the Defendant was offering to re-employ the Individual Claimants, the Judge implicitly recognised that, were such an offer not being made, there would be no “conflict” and that the Defendant/Appellant could simply dismiss. If, as the Judge appears to have accepted, on a proper construction of the Contracts, it was open to the Defendant/Appellant to dismiss simpliciter, it is plainly a misconstruction of such Contracts to conclude that it could not do so if it was intending to make an offer of re-employment under the terms of an entirely different contract.”

The Claimants’ response is well summarized in the skeleton argument of Mr Gilroy and Mr Brittenden:-

“15.

…It is not suggested that the Court erred or misdirected itself in law. D’s contention that entitlement to Retained Pay only endured for as long as each Affected Employee is employed under that particular contract of employment is manifestly unsound. The parties’ mutual intentions were clearly and unambiguously reflected in numerous communications issued to staff when Retained Pay was introduced. It was variously described as being something which was a “guarantee” which would endure “for life”, as “protection for life”, was something which remains for as long as you are employed by Tesco." and entitlement would endure for as long as each Affected Employee continued in the “same role” - i.e. as a Warehouse Distribution Operative rather than being coterminous with employment on that particular contract of employment. It was not something that could be unilaterally removed at the behest of D, but required mutual agreement. The Court’s conclusion on this issue is analogous to a finding of fact and should not be disturbed on appeal.

…

28.

…The repetitive assertion that the Judge’s conclusion was “wrong” or “simply wrong” amounts to nothing more than D disagreeing with the Judge’s construction of the ordinary natural meaning of the words communicated by D, from which the Court ascertained the parties’ mutual intentions. The fact that D disagrees with the Court’s reasoning provides no basis for identifying any error of law. The Court was entitled to reach the conclusion that it did in light of the undisputed facts, communications, and unambiguous evidence as to mutual intention of the parties. Accordingly, applying Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 [14]), there is no discernible error of law. The Court’s conclusion as to meaning is analogous to a finding of fact which this Court should be slow to disturb. Indeed, if there existed any doubt on these “extreme” facts, the Court’s analysis reassuringly chimes with the plain and natural meaning of the words used.

29.

D’s error is to assert that the “permanent” entitlement to Retained Pay meant no more than it is removed from the sphere of collective bargaining and “… for so long as their contracts endured”: D skeleton [4], [16], or otherwise for “… full duration of the Contract…”: D skeleton [11]. This involves a distinctly partial reading of the communications issued to Affected Employees - to the exclusion of key components of the terms governing Retained Pay (summarised above). Indeed, as the Court found as a fact, the removal from collective bargaining formed only part of the relevant context, but materially: “… that was not the full extent of their intention…” [40]. D’s suggestion that the judge somehow ignored this is misplaced: see D skeleton at [13(2) and 13(6)(d)].

30.

D ignores the context of what it actually communicated to staff. Again, by way of illustration:

(i)

Retained Pay was described as being “protection for life” [9].

(ii)

Entitlement to Retained Pay was to continue “for as long as you are employed by Tesco in your current role” [10]. D’s intention following the process of fire and re-hire was that the Affected Employees would continue to be employed in the same role as Distribution Warehouse Operatives.

(iii)

Entitlement was “guaranteed for life” - not limited to the duration of the particular contract [11]. The use of the word “guarantee” is rarely if ever found in employment contracts but it is something which is well understood by ordinary people to connote some benefit or entitlement which has acquired special or enhanced protection.

(iv)

It was described as a “permanent feature of an individual’s contractual eligibility …” at [14] and also at [37.1].

(v)

Entitlement to Retained Pay was promised to be “guaranteed forever” [27.1].

(vi)

It could only ever be removed by “mutual consent” [37–1] - in other words, it could not be unilaterally withdrawn, this was precisely what D was seeking to do.

…

33.

D’s suggestion at Ground 1(d) that “permanent” means merely that it could not be removed by collective bargaining (but could be easily removed unilaterally by other means, which were never explained to anyone, and fell outside of the agreed conditions as to continuing eligibility referred to in Ground 1(a)), in the context of the overall communications, involves a kaleidoscopic approach to contractual interpretation. It is rather unattractive for D to essentially assert that the words used in the communications to staff do not mean what they say (and are in fact illusory).

…

35.

Accordingly, D impermissibly places a gloss on the above communications to suggest that the individual employee “… would have a permanent entitlement to retained pay, on the conditions in the Retained Pay Terms , for so long as the Contract continued…”: (D skeleton at [16]). That construction is unsustainable because of the following

(i)

The language used to describe the nature and duration of the entitlement to Retained Pay (see above).

(ii)

The construction now contended for by D was never explained to anyone at the time.

(iii)

D wholly overlooks the point that entitlement was stated to endure “for as long as you are employed by Tesco in your current role” - i.e. not limited to or coterminous with being employed by reference to that particular contract of employment.” …

37.

The position advanced by D is inherently contradictory to the meaning and effect of the communications to staff and how entitlement was described: Ground 1(e).The mutual intentions of the parties are inexorably clear - this is not one of those rare cases where meanings or words or phrases - to adopt a phrase used by Lord Hoffmann in West Bromwich - have been “mangled”. To find otherwise, as the Judge recognised at [39], would be to “deprive” the totality of the communications of their proper and ordinary meaning. Otherwise, this would not only fail to reflect the meaning that a reasonably informed observer would give to the language used in the express terms, but would be an inversion of their meaning. “Guarantee” would mean something far removed. “Permanent” would mean temporary, or otherwise for as long as D wished, whether for arbitrary or capricious reasons or otherwise. The reference to it being withdrawn only by “mutual consent” would bear the polar opposite meaning - that it can be removed unilaterally by D. Similarly, the reference to entitlement enduring while someone is employed in their “current role” which has not changed, would be deprived of any meaning. The Court was entitled to find that these various expressions would, on D’s case, be rendered very much “superfluous” [45].”

Before considering the effect of the pre-contractual documents the starting point should be to consider on ordinary principles of construction what the contract itself means. The important phrases in the collective agreement are that Retained Pay “will remain a permanent feature of an individual’s contractual eligibility”; that it “can only be changed by mutual consent”; and that on “promotion to a new role” it will cease. This wording seems to me at least consistent with that contained in the original contracts of employment: in that of Mr Singh dated 26 September 2007 it is stated that Retained Pay “can only be altered in agreement with yourself and ceases when you agree to a promotion.”

If the matter rested there the Claimants’ case would be unsustainable. There is nothing in the wording of the Retained Pay provisions themselves, whether in the 2007 version in the individual contracts or the 2010 version in the collective agreement, which could prevent the employer from giving notice to terminate the contract in the usual way.

The judge found at paragraphs 38-39 of her judgment that the construction of the contractual documentation alone does not support the Claimants’ case. She accepted that “devoid of context, the wording of the Retained Pay Provisions might be considered to confer an entitlement which is only permanent for as long as the particular contract endures”. She went on, however, to hold at paragraph 40 that such a construction of the word “permanent” would “ignore the intention of the contracting parties in this case”. The important question is then what role can be played by the pre-contractual documents to demonstrate the parties’ intention, and what intention that was.

There is a great deal of learning, including several decisions of the House of Lords and Supreme Court, on the circumstances in which pre-contractual statements may be taken into account as aids to interpretation. It is unnecessary to go through the familiar list of authorities. In some circumstances pre-contractual statements which demonstrate the mutual intentions of both parties may be admissible, but it must be clear that both parties had the same intention.

Whether one focuses on the phrase “guaranteed for life” or the word “permanent” I cannot accept that it has been shown that it was the mutual intention of the parties to the collective agreement, or the parties to the individual contracts of employment into which the 2010 Retained Pay clauses were incorporated, that the contracts would continue for life, or until normal retirement age, or until the closure of the site concerned. Nor can I accept that it was the mutual intention of the parties to limit the circumstances in which Tesco could bring the contracts to an end. There is no evidence that anyone addressed their mind to the possibility that in the future the company might seek to “fire and rehire”. Furthermore, it does not seem to me to make any sense to say that if, having given notice of termination, the company makes no offer of a new job it has no liability for breach of contract; if it then offers the employee a new job in a different role there is no continuing entitlement to Retained Pay; but that if it makes an offer to re-engage the employee in the same role as before it can only be on the original terms.

It is true that the Retained Pay provisions incorporated into the contracts specified no time limit, nor what Parliamentary draftsmen would call a sunset clause. But that is not sufficient to get round the lack of clarity in the Claimants’ case as to what both parties to the contract meant by “permanent”.

The interpretation for which Tesco contend does not deprive the term “permanent” of all meaning. There was an obvious concern that the minority in receipt of Retained Pay might see their differentials eroded in future collective bargaining in the interests of the majority. The “Q&A” document issued at Lichfield on 20 February 2007 (see paragraph 15 above) emphasised that Retained Pay “cannot be negotiated away by either Tesco, USDAW or USDAW shop stewards”.

If the 23 February 2007 “joint statement” had been issued alongside the collective agreement, or expressly referred to in it, there might be an argument to be made that its contents could be treated as explanatory notes: see Lewison, The Interpretation of Contracts (7^th edition, 2021) at 3.38 to 3.42. But three years passed between the joint statement and the collective agreement, and there is no such cross-referencing in the latter document.

I therefore conclude that the express terms of the contracts should be interpreted in accordance with what the judge rightly found to be their natural and ordinary meaning, namely that Tesco would have the right to give notice in the ordinary way, and that the entitlement to Retained Pay would only last as long as the particular contract.

If “permanent” (or any other phrase contained in the pre-contractual documents such as “for life”) meant what Mr Gilroy contends it means, then the Retained Pay clauses incorporated into the contracts in 2010 would be express terms on the basis of which the claims would succeed. But if, as I think, these words do not have a clear meaning, that creates similar difficulties for the Claimants’ case on implied terms.

In Yoo Design Services Carr LJ reviewed the leading authorities on the implication of a term into a contract and at [51] summarised what she said those authorities established:-

“i)

A term will not be implied unless, on an objective assessment of the terms of the contract, it is necessary to give business efficacy to the contract and/or on the basis of the obviousness test;

ii)

The business efficacy and the obviousness tests are alternative tests. However, it will be a rare (or unusual) case where one, but not the other, is satisfied;

iii)

The business efficacy test will only be satisfied if, without the term, the contract would lack commercial or practical coherence. Its application involves a value judgment;

iv)

The obviousness test will only be met when the implied term is so obvious that it goes without saying. It needs to be obvious not only that a term is to be implied, but precisely what that term (which must be capable of clear expression) is. It is vital to formulate the question to be posed by the officious bystander with the utmost care; [emphasis added]

v)

A term will not be implied if it is inconsistent with an express term of the contract;

vi)

The implication of a term is not critically dependent on proof of an actual intention of the parties. If one is approaching the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time;

vii)

The question is to be assessed at the time that the contract was made: it is wrong to approach the question with the benefit of hindsight in the light of the particular issue that has in fact arisen. Nor is it enough to show that, had the parties foreseen the eventuality which in fact occurred, they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred.

viii)

The equity of a suggested implied term is an essential but not sufficient pre-condition for inclusion. A term should not be implied into a detailed commercial contract merely because it appears fair or merely because the court considers the parties would have agreed it if it had been suggested to them. The test is one of necessity, not reasonableness. That is a stringent test.”

For my part I consider this an accurate summary of the law: Mr Gilroy did not contend otherwise. The judge cited it, but with respect I cannot agree with her conclusion that nevertheless the term contended for by the Claimants could be implied.

My principal difficulty with the Claimants’ case on implied terms is that, just as the pre-contractual statements do not have a clear or precise meaning, so too it is far from clear what term is to be implied. Take as an example the sentence “the retained pay is guaranteed for life” contained in perhaps the best pre-contractual document from the Claimants’ point of view, the joint statement of 23 February 2007. What does “guaranteed for life” mean? Mr Gilroy accepted that it would not be a breach of contract if an employee with retained pay were found to have stolen from the company and was summarily dismissed for gross misconduct. He also accepted that a dismissal on the grounds of permanent incapacity would likewise not be a breach of contract; and similarly a dismissal on the grounds of redundancy if the relevant distribution centre was to be closed. On the other hand, Mr Gilroy did not concede any other limit to his clients’ entitlement. He was asked whether, if a retained pay employee in good health wished to continue working into his 90s he would be entitled to do so, and submitted that he would. In the case, for example, of Mr Singh, who was born in 1980, the clause could still be operating half a century from now if the Lichfield centre remained open. Moreover, Mr Gilroy’s concession about cases of the complete closure of a site was limited to just that example. If the staffing requirements for warehouse operatives at Lichfield or Daventry reduced by half, any attempt to select Retained Pay staff for redundancy on the basis that they were the most expensive would, he submitted, be a clear breach of contract. Indeed, if the judge was right in granting an injunction, it would be a contempt of court.

Mr Gilroy argues that if an officious bystander had asked immediately after witnessing the signing of the collective agreement in February 2010 whether Tesco could as a matter of law sack the Retained Pay employees by giving them notice the following week, the parties’ answer would have been “of course not”. But this is to blur the distinction between wrongful dismissal and unfair dismissal. If Tesco had given notice to terminate the individual contracts on giving a few weeks’ notice in early 2010 they would have been met by tribunal claims for unfair dismissal from each of the employees concerned (provided only that they had the necessary minimum length of service) to which there could be no realistic defence. The dismissals could not be justified on the grounds of misconduct, incapacity, redundancy (on the contrary), nor of a reorganisation of the workforce constituting some other substantial reason for dismissal within the meaning of s 98(1)(b) of the Employment Rights Act 1996. The result in each case would probably have been an order for re-instatement, or a maximum compensatory award plus an additional award for failure to re-instate. If the same officious bystander had asked whether the Retained Pay employees had the right to remain in post (unless the site closed) for the rest of their lives, the Claimants might have answered “of course”, but the company would certainly not have done so. In short, I do not consider that the obviousness test is satisfied. The inconsistency of the proposed implied term with the express term of each contract allowing termination on giving notice (as it happens, the statutory minimum) is a further serious obstacle in the Claimants’ path.

Mr Gilroy relied on the established line of cases relating to permanent health insurance. In Aspden v Webbs Poultry and Meat Group (Holdings) Ltd [1996] IRLR 521 Sedley J concluded (at [15]) that: “It was … the mutual intention … that the provisions for dismissal in the contract of employment into which they entered … would not be operated so as to remove the employee's accruing or accrued entitlement to income replacement insurance at the sole instance of the [employer] (that is to say, otherwise than by reason of the employee's own fundamental breach).” Sedley J therefore held that an employer’s otherwise unrestricted power to terminate the contract of employment was qualified by an implied term that the employer would not do so while the employee was incapacitated, and where this would prevent an incapacitated employee from qualifying for PHI benefit; and that a term could be implied in order to give effect to the mutual intentions of the parties at the time the PHI terms were introduced.

These observations were approved (though obiter) by Staughton LJ in Brompton v AOC International Ltd [1997] IRLR 639 at [32]. In Briscoe v Lubrizol [2002] IRLR 607, Ward LJ stated at [107]: “… the principle to emerge from [the PHI] cases is that the employer ought not to terminate the employment as a means to remove the employee’s entitlement to benefit, but the employer can dismiss for good cause whether that be on the ground of gross misconduct or, more generally, for some repudiatory breach by the employee.”

According to Lord Millett, giving the advice of the Judicial Committee of the Privy Council in Reda v Flag Ltd [2002] IRLR 747, the result in Aspden was justified by “the unusual circumstances in which the contract had been entered into and the inherently contradictory terms which resulted”. However, Reda v Flag Ltd was a case about share options, not permanent health insurance; and in this jurisdiction the welcome given to the decision in Aspden has been less grudging.

There is a useful review of the PHI cases by Simler P sitting in the Employment Appeal Tribunal in Awan v ICTS UK Ltd [2019] IRLR 212. She said at [55]:-

“55.

I fully accept that terms should not be implied too readily, and that courts should tread warily in this area.  However, this is a case where the contract was known by both employer and employee to include a disability insurance plan which could only work if the employees eligible to receive such benefits remained in employment for the duration of their incapacity.  The contract of employment is inherently contradictory.  It seems to me that, on a proper construction of the contract, it is contrary to the functioning of the long-term disability plan, and to its purpose, to permit the Respondent to exercise the contractual power to dismiss so as to deny the Claimant the very benefits which the scheme envisages will be paid.  In my judgment a term can be implied whether on the officious bystander or the business efficacy tests of implied contractual incorporation that “once the employee has become entitled to payment of disability income due under the long-term disability plan, the employer will not dismiss him on the grounds of his continuing incapacity to work.”  That term is capable of clear expression, reasonable in the particular circumstances and operates to limit (rather than contradict) the express contractual right to terminate on notice by preventing the exercise of that right in circumstances where it would frustrate altogether the entitlement to long term disability benefits expressly provided for by the contract.”

I agree with these observations, including what Simler P said about the need to tread warily. It is now generally accepted, and certainly I would hold, that Aspden was rightly decided. If an employee has the benefit of permanent disability insurance under the employer’s scheme, that benefit would be rendered entirely valueless if the employer could dismiss him on the grounds of that same disability.

If the collective agreement signed in February 2010 had included a clause such as “provided the site remains open Retained Pay will continue until you reach the age of 65” then the present case would be analogous to Aspden or to Awan. But it does not. I do not accept, therefore, that the PHI line of cases gets the Claimants home.

If the arguments as to the interpretation of the express terms for the incorporation of implied terms fail, the Claimants’ fallback argument raised in the Respondents’ notice is promissory estoppel. It is said that although the contract gave Tesco the usual unfettered right of termination, the pre-contractual statements give rise to an estoppel preventing Tesco from exercising that right.

A promise can only give rise to an estoppel if it is clear and unequivocal: so held the House of Lords in Woodhouse Ltd v Nigerian Produce Ltd [1972] AC 741. None of the pre-contractual statements relied on even mentions termination of the contract. Still less does any of them contain a promise that Tesco would not exercise its right to terminate. For the reasons already set out, the promises are not literally that (for example) each of the Claimants would receive Retained Pay for the rest of his life. They cannot be regarded as clear and unequivocal.

Another weakness in the estoppel argument is that a party arguing estoppel must be able to point to a statement on which he relied to his detriment. As Mr de Garr Robinson and Ms Rogers point out in Tesco’s skeleton argument on this topic, “the relevant Claimants have had Retained Pay for more than a decade, the basic element of which alone exceeds £100,000, rather than redundancy payments amounting to a fraction of that sum. There is no unconscionability, and certainly not such unconscionability as could, exceptionally, extinguish Tesco’s right of termination not just now but potentially for decades to come.” I accept that submission.

Even if the judge had been right to find for the Claimants on liability, that could not have justified the grant of an injunction. There are certainly cases, of which Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2012] 2 AC 22 is an example, in which courts have granted injunctions to prevent an employer from terminating the contract until and unless a disciplinary procedure required by the contract has been followed; and cases such as Chhabra v West London Mental Health NHS Trust [2014] ICR 194 where an injunction was granted to restrain the employer from invoking a public sector disciplinary procedure which was not applicable to the facts of the Claimants’ case. But Mr Gilroy could not point to, and I am not aware of, any case in which a court has granted a final injunction to prevent a private sector employer from dismissing an employee for an indefinite period.

Moreover, it is axiomatic that an injunction cannot be granted unless it is clear beyond argument what the Defendant can or cannot do: in the words of a Scottish case from 1874 cited by Lord Hope of Craighead in Attorney General v Punch Ltd [2003] 1 AC 1046 “if an injunction is to be granted at all, it must be in terms so plain that he who runs may read”. That cannot, with respect, be said of the injunction granted by the judge. The prospect that in the event of a reduction in the workforce at Lichfield or Daventry and a redundancy selection exercise occurring, perhaps many years from now, the company would be at risk of an application to seize its assets and/or commit its directors to prison is not a satisfactory one. The remedy for a wrongful dismissal at common law is almost invariably financial.

I would allow the appeal.