News & Insights

‘Fire and re-hire’ practices under scrutiny again

Dangers of this approach highlighted by recent disputes.

What is ‘fire and re-hire’?

The practice of ‘fire and re-hire’ is also known as ‘dismissal and re-engagement’. It normally involves an employer trying to persuade an employee to accept a change in their terms and conditions and then terminating their contract if they do not.  They will be subsequently rehired if they accept new contractual terms but will stay dismissed if they refuse.  The practice is controversial because the employee is normally offered worse terms for the same role. It is not unlawful if it is handled properly but does carry considerable risk.

Why is it in the spotlight?

Employers usually adopt this approach to reduce costs at times of extreme financial difficulty.  A reduction in hours and rates of pay may be a way to avoid wholesale redundances. It has become more prevalent due to pandemic pressures. Major brands like British Airways and British Gas have been in the spotlight for using ‘fire and re-hire’ this year.  The Clarks shoe company is currently facing a strike by over 100 warehouse workers, who claim this tactic is being used unfairly to cut wages by 15%, reduce sick pay and redundancy pay and scrap paid breaks.

Given the recent criticism ‘fire and re-hire’ has attracted, the government asked ACAS to investigate. Their June 2021 report highlighted a perception that some employers are using it just as a ‘negotiating tactic’ to threaten employees. ACAS made no firm recommendations but suggested a range of alternative legislative changes, such as reform in the law of unfair dismissal and prohibition of wide contractual variation clauses. No action has been taken as yet.  A private members bill, seeking to largely prohibit the practice was recently blocked by the government. They argue that firms in financial difficulty must retain the option to offer staff new jobs. With the aim of finding non-legislative ways to solve the problem, they have tasked ACAS to provide more comprehensive guidance.

How can it be properly managed?

Changes to terms and conditions can be made if:

  • The contract contains a ‘flexibility’ clause that gives the employer a right to make ‘reasonable changes’ to certain conditions of employment (usually minor changes).
  • The affected employee agrees to the changes after a period of consultation.
  • An employee’s representative (e.g. trade union) agrees to the change on their behalf.

However, an employer has no automatic right to ‘fire and re-hire’. Under the terms of the Employment Act 1996, employers must show there is a pressing business reason for the dismissal.  They also need to follow a fair process which allows time for adequate consultation with affected staff.  This is a legal requirement where dismissal affects twenty or more employees in one location. Consultation is very important as it creates a forum to clearly explain the business rationale, the consequences of not agreeing to the changes and to secure employee buy-in.

In the event that an employee does not agree to the new terms, an employer may go down the route of serving notice and offering to re-employ them on new contractual terms. However, it is essential to follow due process in this circumstance, by giving the required notice and a right to appeal.

What are the risks?

There remain considerable areas of risk with this practice:

  • Imposing new terms unilaterally may constitute breach of contract, or constructive unfair dismissal so it is safest to seek express consent.
  • Dismissal may prompt a claim for unfair dismissal/breach of contract, particularly if there is a failure to follow due process e.g. failure to provide sufficient notice, or provide a fair reason for the change.
  • Flexibility clauses tend to be interpreted narrowly by the courts and should be relied upon with caution.
  • Variations to contracts and dismissals are not permitted where there are Transfer of Undertakings (Protection of Employment) Regulations in place (TUPE).
  • Changes to individuals’ employment contracts are prohibited where there is a collective trade union agreement.
  • Employees may refuse to accept the terms and continue to work under protest.
  • There could be significant reputational damage because of adverse publicity as well as damage to employee relations and morale.

General Guidance

Employers may limit their exposure to risk if they plan their strategy careful, clearly communicate their business rationale and adhere strictly to dismissal procedures. Businesses invariably receive the most negative publicity when they have badly managed the process. ‘Fire and re-hire’ should only be used as a last resort.  If it is not, it is unlikely an employer could defend a claim. An employment tribunal would have expected an employer to have acted ‘reasonably’ and to have explored other avenues and at least to have attempted to reach an agreement with employees first. If you would like further information or advice regarding this issue, please contact our Employment team.