Changes to “fire and rehire”

One of the most significant changes in the Employment Rights Bill (the legislation currently making its way through parliament which will make sweeping changes to employment laws) related to “fire and rehire”.

This principle, otherwise known as dismissal and re-engagement, has received a lot of bad press over the past few years. It is used where a company wants to change the terms on which people are employed and they have been unable, or not even tried, to reach agreement with staff over the new terms. Instead, the company gives notice to affected individuals to terminate their current contract and employment, and offer continued employment on new terms. The employee is not required to accept the new terms but if they don’t, they will be out of a job. It is lawful where a company has a genuine business reason to make the change and follows a fair process.

The reason it has received bad press is because some large companies have used it to try to force employees to accept terms which are substantially worse than their current terms. The union representing employees at Tesco argued that where a benefit was described as permanent in the contract, the company could not use fire and rehire to take that benefit away. Asda hit the news after threatening to dismiss 7,000 employees if they did not accept a pay cut and P&O were criticised after firing staff without any consultation and hiring cheaper agency staff to replace them.

The last government published a code of conduct on dismissal and re-engagement last year. This requires employers to carry out meaningful consultation and not to raise the threat of dismissal too early or to put undue pressure on employees. A failure to comply with the code could result in a 25% uplift to Employment Tribunal awards if an employee succeeds with certain related claims.

However, the Employment Rights Bill includes significant changes which will prevent amendments being made except in the most exceptional of circumstances. To be permitted, a business will need to show that it is facing serious financial difficulties affecting the business’ viability, which the proposed changes will address or mitigate and there is simply no other option to keep the business going. If an employer cannot show these three things, then dismissing an employee for refusing to agree to changes will be automatically unfair.

Currently there is nothing in the Employment Rights Bill which would stop employers from, for example, simply freezing pay if there is no contractual right to pay rises. That may or may not change by the time the bill becomes law.

Although the Government has indicated that the change will not come into force until next year, given the need to consult with staff, if businesses are contemplating making changes to employment terms, they are advised to do so as soon as possible. After the law changes it will become, all but impossible to change the terms of a contract of employment. If you need help doing this, you can get in touch here.