As the economic impact of the Covid-19 pandemic continues to be felt across businesses, some have been exploring ways in which they can cut employment costs. One approach is a ‘fire and rehire’ strategy - where an employer dismisses an employee but re-offers them their old role on new terms. Well-known employers such as British Gas and Tesco faced much criticism last year after employing this controversial tactic.
The debate on fire and rehire was recently re-ignited in the wake of the outrage sparked by P&O Ferries' mass sackings, despite the fact that P&O Ferries’ actions were not strictly a fire and rehire. Nevertheless, it led to the government announcing in March that it will introduce a new statutory Code of Practice which would detail the steps an employer should follow when considering the fire and rehire strategy.
Making Changes To Employee’s Terms And Conditions
It may sometimes be necessary for employers to change terms such as hours worked, rates of pay or the place of work due to business requirements. The legal starting point is that in order to change an employee’s terms and conditions of employment, the employee must consent. Imposing new terms without consent will, in most cases, result in a breach of contract. The safest option is therefore for employers to seek express agreement to the new terms, either through individual or collective consultation.
The employment contract may itself contain a flexibility clause allowing the variation. However, it is worth bearing in mind that these types of clauses tend to be interpreted narrowly by the courts, especially when the changes are unfavourable to the employee, and so should be relied upon with caution.
If consent is not forthcoming, an employer may seek to impose the new terms unilaterally but this tactic may leave it open to claims for breach of contract or constructive unfair dismissal.
What Is Fire And Rehire?
Where an employee remains unwilling to accept the new terms, an employer may decide to dismiss the employee and re-engage them immediately on the revised terms. This practice is fire and rehire. Employers commonly use this practice to change employees’ terms and conditions to introduce less favourable terms.
Fire and rehire is often used to avoid or minimise redundancies, but may also be used for operational reasons, such as streamlining disparities between existing contracts within an organisation, or simply to increase profit.
Is Fire And Rehire Lawful?
Fire and rehire is potentially lawful provided it is handled properly and if the employer has a fair reason for the dismissals under the Employment Rights Act 1996. In most cases, employers will seek to rely on ‘some other substantial’ reason under s.98 ERA. However, in order to do so, they will need to show that they have solid business needs that justify using fire and rehire dismissals. This will need to be something serious and substantive to satisfy an employment tribunal that it was reasonable in all circumstances of the case to adopt a fire and rehire strategy.
Employers must also ensure that a full and meaningful consultation has taken place with affected employees to try and get their consent to the changes. As part of this consultation, they should explain the proposed changes and why they are required as well as listening to employees’ concerns. Employers also need to advise affected employees of the possible alternatives if an agreement cannot be reached e.g. the risk of redundancies. When published, the new Statutory Code of Practice on Fire and Rehire will provide detailed guidance on how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms and what steps an employer should follow when considering a fire and rehire strategy.
In cases where twenty or more individuals are at risk of dismissal as a result of fire and rehire, employers should be aware of their legal duty to consult the Trade Union and Labour Relations (Consolidation) Act 1992.
If the dismissals cannot be avoided, employers should be careful to follow a fair dismissal procedure. This includes providing the affected employees with the correct notice period and offering a right of appeal against the dismissals.
The Risks
Where an employee feels like a fair process has not been followed, they might be able to make a claim to an employment tribunal for unfair dismissal (subject to their having a minimum of 2 years’ service), wrongful dismissal or breach of contract, depending on the circumstances.
The case of Khatun v Winn Solicitors Ltd is a good example of what can happen when a fire and rehire strategy is badly handled. There, an employment tribunal held that while the employer, in that case, had a sound business reason for wanting to vary employment contracts, there had been no meaningful consultation. Ms Khatun was given 24 hours to accept the changes or face dismissal and was not offered an appeal. Her dismissal was therefore found to be unfair.
It is also worth bearing in mind that when the Statutory Code on Fire and Rehire is published, courts and employment tribunals considering relevant claims, including unfair dismissal, will be required to look at whether an employer has followed the guidance. In addition, they will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply with the code when conducting a fire and rehire exercise.
Aside from the risk of legal action, a fire and rehire strategy risks damage to employee engagement and morale, particularly if employees have not been properly consulted throughout the process. It can also cause severe reputational damage and in some industries, lead to potential industrial action.
Practical Steps To Take
Employers considering a fire and rehire approach should, therefore;
- ensure careful planning has taken place before embarking on the process to ensure they are clear about why changes to the contractual terms are being proposed and are able to justify this to employees
- consider fire and rehire as a last resort and think about whether any alternatives are available, such as offering incentives to encourage employees to agree to the changes, asking for volunteers or limiting changes to new recruits
- try and reach an agreement on changes to terms and conditions with as many employees as possible and only use fire and rehire as a last resort for those who remain resistant to change
- ensure that the changes do not take place until the employee has been fairly dismissed and subsequently rehired under the new contract.
Although the practice of fire and rehire is currently lawful if it is conducted properly and used as a reasonable last resort, it can still be a high-risk strategy. Employers should only take on this approach if they understand all the associated risks that it involves. Obtaining specialist advice on how to effectively manage any business reorganisation or amend contractual terms is crucial and our experienced employment law team at Witan solicitors can help you to significantly reduce any potential risks. Contact us today if you require our legal assistance with your employment disputes.
