Even if an employer has stipulated in a collective agreement that a certain payment is “permanent” which in turn becomes an incorporated term into the employee’s contract of employment, the Court of Appeal has held in USDAW and ors v Tesco Stores Ltd that the employer still has the right to give notice in the ordinary way. As a result, the entitlement to the payment only lasts for as long as the particular contract lasts.

USDAW instructed Thompsons to act on behalf of its members.


Basic facts

In 2007, Tesco negotiated a deal with USDAW under which certain warehouse staff received a significant enhancement to their salary for agreeing to move from one distribution centre to another. The collective agreement which was incorporated into their contracts of employment stipulated that the payment – known as Retained Pay (RP) – was permanent and could only be changed by mutual consent as long as the individual remained in their current role.

In 2021, however, Tesco gave notice to everyone in receipt of RP that it intended to remove the relevant clauses from their contracts in return for an advance payment which equated to 18 months of RP. Those who refused were told that their contracts would be terminated and they would be re-engaged on different terms without a right to RP.

USDAW applied to the High Court for a declaration that the contracts of the relevant staff contained an express term which entitled them to receive RP on a permanent basis. In order for this to operate effectively, a term should be implied that Tesco could not terminate their contracts in order to remove that right. USDAW also sought an injunction stopping Tesco from terminating the contracts of anyone who refused to give up their contractual right to RP.


Decision of High Court

Noting that the clear, mutual intention of the parties was to preserve the right to RP for as long as they remained in the same substantive role, the judge held that a term should be implied into the relevant contracts that Tesco did not have the right to terminate the contract to remove the right to RP. She also granted an injunction restraining Tesco from dismissing any of the affected employees in order to remove their right to the payment.


Decision by Court of Appeal

The Court of Appeal has now overturned that decision. It held that the statements and documentation which had underpinned the fact that RP was to be a permanent entitlement were pre-contractual in nature and inadmissible as an aid to construction.

It then determined that irrespective of the use of the word “permanent” in the collective agreement as incorporated into the individual contracts of employment, it was far from clear that the mutual intention of the parties was for those contracts to “continue for life, or until normal retirement age, or until the closure of the site concerned”.

In light of this, the court was not convinced that the parties intended to limit the circumstances in which Tesco could bring the contracts to an end. It, therefore, concluded that the express terms of the contracts should be interpreted in accordance with their natural and ordinary meaning, namely that Tesco would have the right to give notice in the ordinary way and that the entitlement to RP would only last as long as the particular contract and no term could be implied to prevent notice being served in the ordinary way.

Finally, it held that it was not appropriate for the High Court judge to grant an injunction. The court was not aware of any case in which a final injunction had been granted for an indefinite period which prevented a private sector employer from dismissing an employee. Instead, it stressed that the remedy for wrongful dismissal was almost invariably financial.



Thompsons Solicitors has sought leave from the Supreme Court to appeal this decision on behalf of USDAW.