Wake-up call: Is it possible to fire and rehire?

Dismissing staff and then re-engaging them on different terms is legal – but only if you follow proper procedure, as Stuart McBride explains

 

The problem

 

On 15 July, the Court of Appeal in England overturned a High Court injunction that had stopped supermarket chain Tesco from using ‘fire and rehire’ to change the contractual terms of a group of employees. It is just the latest twist in a controversial tale.

 

The practice of fire and rehire has been in the spotlight and attracted significant criticism from media and trade unions in recent years. A survey of workers published by the Trades Union Congress in January 2021 found that, since March 2020, 9% had been told to reapply for their jobs on worse terms and conditions and that the tactic is being used across a range of sectors, including hospitality.

 

The law

 

Fire and rehire processes are used by employers who can’t come to an agreement with employees about changes in their employment contract. It’s a way for employers to overcome an impasse and redraft contracts on new terms that are often less beneficial to staff.

 

A legal fire and rehire process involves the employer taking the following steps:

• Establishing a business case for the change.
• Consulting with employees.
• Issuing notice under the employees’ original contract of employment. The “fair reason for dismissal” falls under the catch-all provision in the Employment Rights Act 1996 and the Employment Rights (Northern Ireland) Order 1996: “some other substantial reason”.
• Immediately offering the dismissed staff the same role but with amended contracts that incorporate the changes sought.

 

Although the process is lawful when conducted properly, it can be complicated and there may be serious repercussions if the correct procedure isn’t followed.

 

Take care

 

Even if employers do follow the correct procedure, fire and rehire entails an inherent risk of unfair dismissal claims from employees challenging the need for the process, and employment tribunals have a wide degree of discretion.

 

In addition, if 20 or more employees are dismissed and re-engaged at the same establishment, this will trigger a duty under the Trade Union and Labour Relations (Consolidation) Act 1992 to collectively consult. Collective consultation involves consulting the trade union if there is one, or specially elected employee representatives otherwise.

 

An employer’s failure to follow the steps under the collective consultation procedure can give employees entitlement to significant awards of compensation: up to 90 days’ pay for each employee affected. Fire and rehire also has the potential to damage employee/employer relations. In a unionised environment this could include industrial action and heighten PR risks. At the very least, a fire and hire initiative is obviously not ideal in terms of employee engagement.

 

Expert advice

 

While the government has declined to put forward new legislation or outlaw the ability of employers to fire and rehire staff, it did ask workplace expert Acas to review the practice. Acas published advice for employers making changes to employment contracts, which is worth reading. However, it is just advice rather than formal guidance or a code of practice. There is no obligation on employers to follow it, and the courts and employment tribunals do not have to take it into account in their rulings.

 

The government is to introduce a new statutory code of practice on dismissal and re-engagement, setting out how employers should hold fair and transparent consultations on proposed changes to terms of employment. There is no date, as yet, for the introduction of the new code, but a draft will be published for consultation in advance.

 

To-do checklist

• Check whether the changes you want to implement are covered under any contractual flexibilities, such as mobility clauses.
• Discuss proposed changes with your employee. If you can’t agree, then using the dismissal and re-engagement procedure outlined above is an option which may enable you to force the changes through.
• If you do decide to use fire and rehire, make sure you’re confident of your business case and familiar with the process, and carefully review Acas’s advice for employers.
• Watch out for publication of the draft statutory code of practice on dismissal and re-engagement, and ensure that your processes incorporate the code’s requirements once it comes into effect.

 

Stuart McBride is partner and head of employment at UK law firm TLT (0333 006 0329)

 

Photo: Shutterstock/Robert Kneschke