Changing Terms of Employment - Fire & Rehire

Recent, highly publicised, events have brought the practice of ‘fire & rehire’ into the spotlight and led to the government announcing that a new Code of Practice will be introduced.

What is fire & rehire?

It usually starts with an employer wanting to change terms and conditions of employment. For example, altering hours of work or pay in a way that will disadvantage the employee.

The first step is to check whether the contract of employment contains specific flexibility wording that allows the employer to make the change they want. If it does, it’s usually fairly straight-forward to introduce the change.

It’s rare though that substantial negative changes will be permitted by the contract. In those cases, if the employer introduces the change without the employee agreeing, the employer will be in breach of contract. In this type of situation, the employer has no defence to their actions and will be exposed to a claim which the employee has a high chance of being successful with. For employees with at least 2 years’ service, the employer could be facing constructive unfair dismissal as well as breach of contract claims.

To minimise these risks, employers should consult with employees about the proposed changes and seek their agreement. If, ultimately, employees fail to agree and the employer is determined to introduce the changes, one option is to dismiss those employees who don’t agree. That’s the fire bit.

The potential fair reason for dismissal in these situations is usually some other substantial reason (SOSR). If the employer followed a fair and open consultation process and was reasonable in dismissing the employee for failing to agree the change, they have the prospect of being able to defend claims of unfair dismissal. 

The employer can go one step further, and offer the employees immediate re-engagement (which, naturally, will be on the new, amended terms). That’s the re-hire bit. By doing this, the employer is providing the employee with an opportunity to mitigate their loss. In other words, an employee bringing an unfair dismissal claim is under a duty to mitigate – and the employer has offered them that opportunity, thereby reducing the risk of the employee being able to obtain substantial, or any, compensation.

Collective consultation

When an employer knows they want to make a contractual change:

• that isn’t permitted by the contract,
• is detrimental
• and if employees don’t agree, they may decide to dismiss them,

they must carefully consider how many employees it affects. 

If it’s 20 or more at a single establishment then this will trigger collective consultation obligations. That means consultation for a minimum of 30 or 45 days (if 100 or more employees are affected) before any dismissals can take effect, and ensuring consultation with an appropriate representative employee body. There are other procedural requirements involved, which must be followed to minimise the risk of the employer being exposed to claims or fines.

The fire & rehire misconception

There is a common misconception that an employer can simply give 30/45 days’ notice of a proposed change to contractual terms, pay lip service to ‘consultation’, then dismiss anyone who fails to agree at the end of that period, with impunity.

That isn’t the case. Even if a proper consultation process has been followed, it doesn’t automatically mean that the employer will be acting reasonably in dismissing those who don’t agree to the changed terms of employment. There’s even more risk involved if affected employees are protected by TUPE.

Nevertheless, this widely held misconception has led to the practice of fire & rehire being fairly common on both small and large scales. Not only that, but many employers conduct the process as a tick box exercise, often without even realising the risks they’re taking.

The new statutory code

On 29 March the government announced that it will be introducing a new statutory code to crack down on fire & rehire practice, and on employers who fail to engage in meaningful consultation with employees.

The aim of this Code is to build on guidance issued by Acas in November 2021 that said employers should only consider fire and rehire as a last resort. The new Code will include the parameters for employers to operate within when seeking to change terms of employment. 

An unreasonable failure to act in line with a statutory code usually increases the risk of an employer being held liable and, where an employer is, an uplift in compensation of (usually) up to 25%.

Is this the end of fire and rehire?

In short, no. Fundamentally, fire and rehire is the use of a number of established principles of law, many of which are laid down in statute. The Code is unlikely to have much of an impact on those responsible employers who already ensure they act fairly, within the law and take specialist advice.

What the Code will do is help bring all employers into line – educating those who are unaware of how they should be handling the process, and punishing those who ignore the rules.