THE UNION OF SHOP, DISTRIBUTIVE AND ALLIED WORKERS v TESCO STORES LIMITED

A contractual entitlement described as permanent may endure for as long as the employee remains in the same substantive role, where that construction reflects the parties’ objective intention and the commercial purpose of the agreement. In exceptional circumstances, a term may be implied restricting an employer’s contractual power to terminate where termination would frustrate that entitlement. The restriction may prevent dismissal and re-engagement designed to remove or diminish the benefit, but does not prevent dismissal for a genuinely unrelated good cause. Such a claim is concerned with the lawfulness of the dismissal under the contract, rather than its manner, and is therefore outside the Johnson exclusion zone.

The claimants, comprising a recognised trade union and three employees, brought a CPR Part 8 representative claim concerning contractual Retained Pay payable to employees at three distribution centres. The employees had transferred from another distribution centre after being assured that Retained Pay would be permanent and would continue for life or for as long as they remained in their current roles.

Tesco proposed removing Retained Pay by voluntary agreement, followed, if necessary, by dismissal on notice and re-engagement on terms omitting the benefit. The claimants sought declarations that Retained Pay was an express contractual entitlement and that Tesco’s termination power was implicitly restricted, together with injunctive relief. The central issues were the construction of the express term, the implication of a restriction on termination, the application of the Johnson exclusion zone, and the appropriateness of declaratory and injunctive relief.

1. Construction. The contracts contained an express term that Retained Pay would remain a permanent feature of contractual eligibility, subject to specified exceptions, and a separate term permitting termination on notice. Construed against the background known to the parties, “permanent” meant that eligibility endured while the employee continued in the same substantive role. The entitlement was intended to preserve the pay which induced employees to relocate and could not be reduced to a benefit lasting only until termination of the existing contract (paras [37]–[40]).
2. Implied restriction. Applying the stringent principles summarised in Yoo Design Services v Iliv Realty Pte Limited [2021] EWCA Civ 560, a term was implied that Tesco’s right to terminate could not be exercised for the purpose of removing or diminishing Retained Pay. Without that term, the express permanent entitlement would lack practical coherence and its purpose would be defeated. The term was obvious, capable of clear expression, and reconciled mutually inconsistent express provisions. The unusual circumstances were analogous to those in Aspden v Webbs Poultry and Meat Group (Holdings) Ltd [1996] IRLR 521, and the principle identified in Jenvey v Australian Broadcasting Corporation [2002] IRLR 520 applied: an employer could not use a contractual power in a way which frustrated the purpose of the contractual benefit (paras [41]–[46]).
3. The restriction did not prevent dismissal for a genuinely unrelated reason, such as genuine redundancy or gross misconduct, although the stated reason would be scrutinised. It also did not prevent an offer of re-engagement in itself; the unlawfulness lay in terminating the existing contract for the purpose of removing or diminishing Retained Pay (para [47]).
4. The claim did not fall within the Johnson exclusion zone. It concerned the contractual circumstances in which dismissal could lawfully occur, not the manner of dismissal or an implied term of mutual trust and confidence. The availability of an unfair-dismissal claim under the Employment Rights Act 1996 did not bar the contractual claim or the relief sought (paras [48]–[50]).
5. Declarations were appropriate because they clarified the parties’ contractual rights. Under section 37(1) of the Senior Courts Act 1981, final injunctive relief was also just and convenient. Damages were not an adequate remedy for the threatened loss, and the injunction was not oppressive or unjust. Tesco was restrained from terminating or otherwise removing or diminishing Retained Pay for a purpose related to that removal, subject to the stated exceptions (paras [52]–[55]). Permission to appeal was refused because none of the proposed grounds had a real prospect of success or raised another compelling reason (paras [59]–[60]).