Clearly, the best solution in these circumstances is to try to reach an agreement with the employees or their union, but this is not always possible. In these cases, the employer may choose to dismiss the employees, by giving contractual notice of termination and immediately offering them re-employment in the same role, with different contractual terms. Firing and rehiring practices are seen as controversial because they force employees into either accepting conditions that they have already refused, or losing their jobs.
‘Fire and rehire’ practices usually result in less favourable conditions for the employees such as a reduction in salary or benefits, amended shift patterns, a change to the hours of work, or a change to the nature of the role. They might also be used where an employee refuses to sign up to restrictive covenants preventing post-employment competition.
From a legal perspective, there is no law against dismissal and re-engagement and it is not a new practice for employers to adopt. However, this is not a risk-free process and many organisations have faced Employment Tribunal claims, including claims for unfair dismissal, where they have used this route to bring in changes to their employees’ terms of employment. This approach does involve a dismissal of the employee, so where an employee has 2 years’ service, an unfair dismissal claim can be brought, whether or not the employee accepts the offer of the new contract. This could result in the employee being reinstated on the original contract terms.
These practices can potentially damage an employer’s reputation, both internally and externally, and this may be a factor in the decision-making process. Negative publicity can harm the employer’s brand.
If an organisation requires changes to be made to its employees’ terms of employment, fire and rehire practices should usually be a last resort. Before resorting to fire and rehire, employers will usually wish to explore alternative solutions.
Employers should first consider the terms of the employees’ contract of employment and whether these permit the employer to simply make the change. However, caution should still be taken and there is an expectation that employers will act reasonably when relying on a “variation clause” of this type.
Failing that, employers should consult with employees and seek their agreement to any changes. Employers should communicate openly and transparently with employees about the reasons for any proposed changes to terms and conditions of employment in the hope of reaching employee agreement.
If employees refuse to agree the change, it is unlikely to be safe to simply impose the change. The fire and rehire option could then be used – dismissing the employee and offering to re-hire on the new, amended terms. However, legal advice should be taken given the risks of potential claims. The employer may need to justify and explain why it was necessary to change the contract terms.
Employers have a legal obligation to collectively consult with employee representatives if they propose to potentially dismiss more than 20 employees at any particular establishment, within a 90 day period, in order to bring about the changes (to fire and rehire).
In November 2021, ACAS published guidance for employers considering making changes to employment contracts, making clear that fire and rehire should be an option of last resort and that employers should first have made all reasonable attempts to reach agreement through full consultation. However, this guidance is not statutory and had no real “bite”.
A draft of a new statutory Code of Practice on Dismissal and Re-engagement was published for consultation in January 2023, with the updated Code being issued in February 2024. It is likely to come into force later this year.
If implemented, the Code will require businesses to hold fair, transparent and meaningful consultations on proposed changes to employment terms before resorting to fire and rehire practices. The Code includes practical steps that employers should follow to find an agreed solution. Employers should contact ACAS at an early stage. It states that, once it is clear to an employer that employees will not accept proposed new terms without negotiation, it should re-examine its plans in light of the potentially serious consequences for employees – dismissal and re- engagement (fire and rehire) must be a last resort. Employers must not use threats of dismissal to coerce employees into signing new terms of employment, and should not threaten dismissal if they do not actually intend to follow through on the threat.
Tribunals will be required to take the Code into account when considering relevant claims such as unfair dismissal. They will have the power to apply an uplift of up to 25% to an employee’s compensation where the Code applies, if the employer unreasonably failed to follow it.
While fire and rehire may offer short-term benefits to employers, it is essential to consider the legal, ethical, and reputational implications carefully. Employers should be proactive in ensuring that their practices comply with the new statutory Code of Practice on dismissal and reengagement likely to be in force later this year, ensuring that firing and rehiring is a last resort. Employers should approach such decisions with caution, transparency, and sensitivity to the needs and concerns of their employees – and take legal advice to ensure the strategy and risks are explored before decisions are taken.
If you would like more information on these issues, please contact a member of BTO’s Employment Team.
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