Fire and rehire: a practice under new scrutiny and practical tips for employers

As the impact of the Coronavirus pandemic continues to be felt across businesses, some have been exploring ways in which they can cut employment costs. One approach which has hit the headlines recently, having been pursued by the likes of British Gas and Tesco, is the controversial practice of “fire and rehire”.

Fire and rehire is a new name for an old practice – that of dismissal and re-engagement. It describes a situation where an employer dismisses an employee but re-offers them their old role on new (and often less favourable) terms.

Although the practice of fire and rehire is not unlawful if carried out properly, not surprisingly it has attracted criticism, with Unite and the TUC both calling for it to be banned. In light of the growing (and increasingly negative) attention about the use of fire and rehire, earlier this year the government commissioned Acas to gather evidence about its use. Its findings have recently been published.

In this blog, we consider the outcome of Acas’ investigation, the government’s response to its report, and how employers can ensure any process that may result in fire and rehire is handled properly.

What is fire and rehire? Changing employees’ terms and conditions

The practice of fire and rehire occurs when an employer seeks to vary an employee’s terms and conditions of employment. To understand how it fits into this process, here is a reminder of the options available to employers when seeking to introduce contractual change:

1. The legal starting point is that to change an employee’s terms and conditions of employment, the employee must consent. Imposing new terms without consent will in most cases constitute a breach of contract. The safest option therefore is for employers to seek express agreement from employees to any new terms.
   
   
2. Sometimes changes may be authorised by an employee’s contract, for example, if it contains a flexibility clause. However, these type of clauses tend to be interpreted narrowly by the courts, especially when changes are detrimental to the employee, and so should be relied upon with caution.
   
   
3. If consent is not forthcoming, employers may seek to impose the new term(s) unilaterally. This tactic carries inherent risks as it may allow employees to bring claims for breach of contract or constructive unfair dismissal, or to refuse to work under the new terms.
   
   
4. Where an employee remains unwilling to accept the new terms, an employer may decide to dismiss the employee and re-engage them on the revised terms. This is the practice of fire and rehire. Provided the correct contractual notice is given this will avoid potential breach of contract or wrongful dismissal claims. However, since an actual termination is involved, inevitably this brings a risk of unfair dismissal claims. Employees may also refuse to accept the terms and work under protest. We consider practical steps for reducing these risks below.

Further details about changing contractual terms can be found in our blog Making changes to employees’ terms and conditions. Acas has also published a guide on Changing an employment contract.

What does Acas say in its paper on fire and rehire?

Acas has recently published the results of its investigation into the use of fire and rehire practices in its paper Dismissal and re-engagement (fire and re-hire): a fact-finding exercise.

The report engaged with a number of stakeholders ranging from trade unions to professional bodies. Many condemned fire and rehire as a tactic used to undercut workplace dialogue, weaken workers’ rights and imbalance negotiations in order to impose less beneficial terms. However, others argued the practice could be used as a reasonable last resort where there is a genuine business need or to help reduce redundancies.  Participants agreed that the practice is likely to increase as government business support, such as the furlough scheme, is wound down.

There was no consensus among respondents over how fire and rehire could be reformed. However, the paper included a number of suggestions for providing more protection, including “naming and shaming” employers and reforms to unfair dismissal law.

The government’s position on fire and rehire

In response to Acas’ report, Paul Scully, Parliamentary Under-Secretary of State for BEIS, said that the use of fire and rehire as a negotiating tactic was “unacceptable and, frankly, immoral” (echoing Boris Johnson’s words from January this year). However, he confirmed that the Government has no immediate plans to introduce “heavy-handed legislation” to prevent the practice. Instead the government has asked Acas to prepare clearer and more comprehensive guidance on how and when such tactics should be used.  None of the other suggestions for improvement have been taken forward. 

Given the calls for fire and rehire to be banned, not surprisingly the government’s response has been strongly criticised, especially by trade unions who described it as “limp”, suggesting that this debate is unlikely to go away.

Practical tips for approaching fire and rehire

Despite the criticism, fire and rehire is not in and of itself unlawful, provided it is carried out properly. However the process is risky; as well as exposure to potential employee claims, employers should be aware of the possible reputational damage and impact on employee relations, and in some industries the potential for industrial action. 

The recent Employment Tribunal case of Khatun v Winn Solicitors Ltd serves as a good example of what can happen when the fire and rehire process is handled badly. In this case, while the Tribunal accepted that the employer had “sound business reasons” for wanting to seek a variation of contracts, it “did not detect even a hint of any reasonable process being followed” – there was no meaningful consultation, Ms Khatun was given 24 hours to accept the changes or face dismissal, and was not offered an appeal.  As a result, Ms Khatun’s dismissal was found to be unfair.

So for employers considering a process which might involve fire and rehire, here are some practical suggestions for how to avoid similar mistakes:

• Employers should not embark on any process to change contractual terms without careful planning. They should be clear about why they are making the changes so that they can justify plans to employees.
  
  
• In order for any dismissals to be fair, employers will need to have a fair reason for dismissal under the Employment Rights Act 1996. In most cases employers will be able to rely on “some other substantial reason” (SOSR). However, in order to do so, they will need to show that they have a ‘sound business need’ to justify the dismissals.
  
  
• Employers will also need to follow a fair procedure. This will involve consulting with affected employees about the proposed changes, including listening to employees’ concerns, providing them with information about why the change is needed and explaining the potential alternatives if agreement cannot be reached (for example if a restructure or redundancies are a possible consequence this should be explained).
  
  
• In cases where 20 or more individuals are at risk of dismissal as a result of fire and rehire, employers should be also mindful of their legal duty to collectively consult (see here for more information).
  
  
• Much of the recent criticism of fire and rehire is that it has been used by employers as a threat or negotiating tactic to force through change. The government’s message is that “all other options to save jobs… should be considered before considering dismissal and re-engagement”. Employers should consider whether any alternatives are available. For example, transitional arrangements, offering incentives, asking for volunteers or limiting changes to new recruits etc.
  
  
• Employers should try to reach agreement on changes to terms and conditions with as many employees as possible, and only use fire and rehire techniques as a last resort with employees who remain resistant to change. It will be harder for employees to argue that their dismissals were unfair if the majority of the workforce agreed to the new terms.
  
  
• If dismissal cannot be avoided, employers should ensure employees are given the correct contractual notice.

With special thanks to Natasha Neale who assisted with this article during her vacation scheme at Farrer & Co.

If you require further information about anything covered in this blog, please contact Caitlin Farrar, Amy Wren, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2021