The Employment Rights Bill – further amendments (part 2)

Proposed changes to “fire and rehire” regime

In last week’s blog we looked at some of the proposed amendments to the Employment Rights Bill as it works its way through Parliament.

Some of the most significant provisions of the ERB relate to “fire and rehire” practices, and there are some significant changes proposed by way of amendment.

Current position under the Bill

The Bill, as originally drafted, would make dismissals automatically unfair (with no qualifying service needed to bring a claim) if the reason or principal reason for the dismissal is:

1. that the employee did not agree to a variation of their contract of employment; or

2. to enable an employer to re-engage the employee (“fire and rehire”) or employ someone else (“fire and replace”), under a varied contract to carry out substantially the same role as the employee carried out before being dismissed.

This would effectively prohibit such practices and would significantly restrict an employer’s ability to change terms and conditions of employment, unless the employee agreed to the change.   These steps are all currently permitted subject to the usual tests of unfair dismissal.

As an exception, the Bill provides that an employer can avoid a finding of automatic unfair dismissal if it can show:-

• That the reason for the variation was to eliminate, prevent, or significantly reduce, or significantly mitigate the effect of, any financial difficulties, which at the time of the dismissal, were affecting, or likely in the immediate future to affect, the employer’s ability to carry on the business as going concern; and

• In all the circumstances, the employer could not reasonably have avoided the need to make the variation.

If both criteria are met, the dismissal would not be automatically unfair, but the tribunal would still need to assess whether the dismissal was fair in all the circumstances (i.e. the usual test under section 98(4) of the ERA 1996). Relevant factors to be considered when determining this would include whether the business consulted with the employee, trade union or other employee representatives, and whether the employee was offered anything in return for agreeing to the variation.

However, concerns were raised that these restrictions on fire and rehire (and fire and replace) practices would severely restrict the ability of businesses to implement reasonable contractual changes, which could result in a lack of growth, increased redundancies and even potential business closures. In response to these concerns, several amendments to the Bill have been proposed by the government to soften the rigidity of these provisions – although the proposed changes still represent a significant shift from current employment practice.

Proposed amendments

Variations that are “restricted”

One of the key proposed amendments narrows the scope of the fire and rehire (and fire and replace) ban, limiting its application so that the automatic unfair dismissal provisions would only apply where an employer seeks to make a “restricted variation” and the employee does not agree to this.  “Restricted variations” would not include every potential type of contractual change.

As you might expect, they would include reductions to pay or holiday entitlement, as well as changes to pension schemes and working hours or shifts. It would also cover the inclusion of variation clauses that allow such changes to be made unilaterally by an employer without an employee’s consent (thereby avoiding the need to “fire and rehire” at all.   It appears that existing clauses are unlikely to be affected so this is an urgent step for employers – review contract of employment and check whether they have a properly drafted variation clause.

The scope of restricted variations does not appear to include changes to an employee’s duties or place of work, but the list of restricted variations may be expanded upon by future regulations.

Non-restricted variations

Under the proposed amendments, if an employee is dismissed for refusing to agree to a non-restricted variation of their contract of employment, the dismissal would not be automatically unfair.

However, this could give rise to an ordinary unfair dismissal claim, for which the tribunal would need to consider the fairness of the dismissal using a defined set of criteria set out in the legislation (which broadly reflect the existing test of reasonableness that a tribunal is obliged to consider).

Outsourcing as a redundancy substitute

The amendments also seek to introduce a new provision into the ERA 1996 to extend automatic unfair dismissal protection to cases where an employee is dismissed (in a non-redundancy scenario) for the principal reason of replacing them on a broadly like-for-like basis, with a non-employee, such as an agency worker or self-employed contractor. In such cases, the same financial difficulties exemption would apply as in other dismissal and re-engagement cases.

The roadmap schedules the dismissal and re-engagement provisions as coming into force in October 2026, with consultation taking place this Autumn.

With that in mind, employers should begin reviewing their approach to contractual changes in light of these developments.

Conclusion

This is one of the fastest-moving periods of time for employment law and employers for many years.   Employers should not underestimate the impact of the forthcoming changes.  Expert advice should of course be taken.