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

Contractual language promising a benefit as permanent does not, without clear and mutual intention, prevent an employer terminating the contract on notice and offering re-engagement on new terms. Pre-contractual statements may assist construction only where they establish a shared intention. An implied term restricting termination requires necessity for business efficacy or obviousness, must be capable of clear expression, and cannot conflict with an express termination right. The limited principle recognised in permanent health insurance cases does not extend where the contract contains no comparably precise benefit structure. Promissory estoppel requires a clear and unequivocal promise and detrimental reliance. A final injunction preventing dismissal indefinitely is unavailable where its terms are uncertain.

USDAW and three employees challenged Tesco’s plan to terminate contracts of employees receiving Retained Pay and offer re-engagement without that benefit. Ellenbogen J held that Retained Pay was a permanent contractual entitlement, implied a term restricting termination for that purpose, and granted declarations and a final injunction: [2022] EWHC 201 (QB). Tesco appealed on contractual construction, implication of terms, the declarations and the injunction. The respondents relied additionally on estoppel. The central issues were whether the Retained Pay provisions qualified Tesco’s right to terminate on notice and whether the relief granted was available.

Lord Justice Bean gave the leading judgment. Newey and Lewis LJJ agreed. The appeal was allowed.

1. Construction. The Retained Pay provisions, read in their contractual context, stated their natural and ordinary meaning. They did not prevent Tesco giving notice to terminate in the usual way. The entitlement lasted only for the duration of the particular contract. The pre-contractual communications did not establish a mutual intention that the contracts would continue for life, until retirement or until site closure, or that Tesco’s power to terminate was limited. The communications could explain why Retained Pay was removed from collective bargaining, but they did not alter the contractual termination right.
2. Implied term. The summary in Yoo Design Services Ltd v Ilive Realty PTE Ltd [2021] EWCA Civ 560 was an accurate statement of the law. Business efficacy and obviousness are alternative, stringent tests. An implied term must be capable of clear expression, must not conflict with an express term, and must be assessed objectively at the time of contracting. The proposed term was insufficiently clear, failed the obviousness test and conflicted with the express right to terminate on notice. The distinction between wrongful and unfair dismissal did not support implication. Under the Employment Rights Act 1996, an early dismissal might have generated an unfair-dismissal claim, but that did not create a contractual right to remain employed.
3. Permanent health insurance authorities. Aspden v Webbs Poultry and Meat Group (Holdings) Ltd [1996] IRLR 521 was rightly decided, and the observations in Awan v ICTS UK Ltd [2019] IRLR 212 were accepted. Those authorities support a limited implication preventing dismissal merely to defeat a contractual disability benefit where the contractual arrangements would otherwise be inherently contradictory. They permit dismissal for good cause. The present Retained Pay provisions contained no comparably clear provision defining duration or eligibility, so the analogy did not assist the respondents.
4. Estoppel. Woodhouse Ltd v Nigerian Produce Ltd [1972] AC 741 required a clear and unequivocal promise. The statements relied on did not promise that Tesco would not terminate the contracts. Nor was there sufficient detrimental reliance or unconscionability capable of extinguishing Tesco’s termination right.
5. Injunction. Cases such as Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2012] 2 AC 22 and Chhabra v West London Mental Health NHS Trust [2014] ICR 194 concerned more limited procedural restraints. A final injunction preventing a private-sector employer dismissing an employee indefinitely was unsupported. The injunction also failed the clarity requirement identified in Attorney General v Punch Ltd [2003] 1 AC 1046. The order could expose Tesco to contempt proceedings in circumstances where the prohibited conduct was uncertain. The appeal was therefore allowed.

• Court of Appeal (Civil Division) — Allowed Tesco’s appeal from [2022] EWHC 201 (QB).
• High Court (Queen’s Bench Division) — Ellenbogen J granted declarations concerning Retained Pay and a final injunction restraining termination or withdrawal of the benefit for that purpose: [2022] EWHC 201 (QB).