The term “fire and rehire” has become common in the UK over the past few years. The practice, whereby an employee is dismissed and then offered a new employment contract on revised terms is not prohibited by law, but cases of misuse by some employers have drawn negative attention.
In 2021, as the UK emerged from the pandemic period and the economy restarted, the government put aside planned legislation restricting the practice. Instead, it announced that it would introduce more detailed ACAS guidance, stressing the importance of a thorough process of consultation, looking at all alternatives to redundancy. It described “fire and rehire” as an option of last resort.
In Spring 2022, the government committed to a statutory code of practice. Slow though the process of drafting that code was, it was eventually finished in early 2023 and a consultation process began, which ran from January to April.
What the code is for
The purpose of the Code is to make sure an employer takes all reasonable steps to look at alternatives to dismissal, and that they carry out meaningful consultation with trade unions (or other employee representatives) with good faith and an open mind. It’s also intended to make sure the employer doesn’t use the threat of dismissal to put pressure on employees to accept new terms, rather than trying to find an agreed solution.
What do employers need to remember?
The Code itself imposes no legal obligations, and a failure to observe it does not mean an employer will be liable for legal action. However, the Code is admissible in evidence in tribunal proceedings and any provision of the Code which is relevant to those proceedings must be taken into account.
Once the Code comes into force, then if an employee makes a claim to the Employment tribunal and can show that the employer didn’t follow the Code’s requirements, the tribunal can make what’s known as an uplift in the compensation awarded – that means an increase of up to 25%. Similarly, if it turns out that an employee has unreasonably failed to comply with the Code, their compensation can be reduced by up to 25%.
Bearing this in mind, employers should methodically document every stage of the process, including all letters, communication and discussion between them and the workforce to show that they followed the procedures recommended by the Code.
Why would an employer want to change the employment contract?
There are many reasons why an employer might want to make changes to employment contracts. These could include:
• economic, business and/or financial reasons e.g. a need to act swiftly to save the business from collapse, to alleviate financial distress or to ensure better use of investment in machinery or technology;
• organisational reasons, such as a change to working practices to meet shifting customer and market demands or to adapt to new technologies or market practices;
• human resource reasons such as a need to harmonise terms and conditions for reasons of fairness.
Unilateral imposition of terms
In Section G of the Code, the issue of unilateral imposition of new terms is discussed. If there has been no agreement between the employer and employees, or their representatives about the new terms, the employer may decide to go ahead and try to impose those terms anyway.
There may be two reasons why they do this:
there is a clause in the employment contract that gives them the power to do so, or
there is no such clause and they decide to go ahead regardless.
If they try to rely on an existing clause, they should think carefully about this and get legal guidance.
Going ahead with no contract clause is a risky endeavour. For some employees, they may consider the risk worth the benefits, but this will usually be a breach of the employee’s contract and is likely to cause significant damage to employee relations. Again, legal advice is strongly recommended before starting out down this path.
What are the risks?
An employee might:
• claim for breach of contract;
• resign and claim constructive unfair dismissal;
• continue working, but under protest;
• continue working to the new terms, either on the basis that there has been an agreed variation of terms, or potentially on the basis that there has been a constructive dismissal and re-engagement which might enable a claim for constructive unfair dismissal;
• bring a discrimination claim if they consider that they have suffered disadvantage which is connected to a particular protected characteristic.
Fire and re-hire
Section H concentrates on the practice of Dismissal and re-engagement. If an employer has carried out a thorough and open information/consultation process, has listened carefully to – and explored fully – any alternative proposals and has concluded that they still need to make changes to the employment contracts then they might, having reached the point of last resort, decide to dismiss the employees and re-engage them on new terms.
Before doing so, the employer should look again at the analysis that led to this point and consider:
• if the new terms are really the best way to achieve their objectives;
• if the analysis shows up any alternative options, or whether they might have been suggested by employees or their representatives during the consultation and whether those might achieve the same objectives; and
• if the changes could have a more pronounced effect on a group of employees who share a particular protected characteristic (as this might foreshadow discrimination claims from the affected employees).
Once the decision has been taken, the employer should give as much notice as possible of the dismissal, taking the employee’s contractual notice period as an absolute minimum.
There may be particular employees who might need a longer notice period so that they can make arrangements which would let them better come to terms with the changes in their employment situation. Where possible, employers should agree to this.
When setting out the new terms of employment, the employer needs to make sure that they are set out clearly in writing and have everything required by Section 1 of the Employment Rights Act 1996. The only terms that should be changed are the ones that have been cleared through the process of consultation, and not try to sneak in any other changes “under the radar”.
When re-engaging employees, this should be done as soon as possible to ensure their continuity of service is preserved. The employer should definitely not use the re-engagement process to break the period of continuous employment for their own advantage.
What to do now
Currently, the Code is only at a draft stage. The consultation period has ended and the government has said that it is now considering the submissions made.
The government said that it would analyse all submissions, and take the views expressed into account before publishing a response and final version of the Code in due course.
It may well be that the draft Code undergoes revision as a result of submissions; we will monitor its progress and keep you updated with what you need to know to ensure that you are fully compliant with the law in all your employment processes and policies.