IS THIS THE END FOR ‘FIRE AND RE-HIRE’?
From January 2027 it will become almost impossible for employers to make certain changes to contracts of employment. The requirements when making changes to contracts were tightened in 2024 after various large companies tried to force employees into accepting new contracts on worse terms than they had previously enjoyed, but further requirements are set to the added.
The correct way for an employer to change a contract in law (if the employee doesn’t simply agree to the change) is for the employer to give notice to terminate the current contract and offer continued employment on the new terms. Provided there is a genuine business reason for the change and a fair process is followed, the process is lawful. It is known as dismissal and re-engagement or, colloquially as fire and re-hire.
Tesco, Asda, P&O, British Airways and British Gas are just some of the big-name companies who have received bad press in recent years after accused of either using or threatening to use fire and re-hire unfairly.
As a result, the government introduced a code of conduct requiring employers to give the employees certain information (including details of the business reason for the proposed change), carry out meaningful consultation and not to raise the threat of dismissal too early or put undue pressure on employees. If an employer fails to follow the code and dismisses the employee, that dismissal will be automatically unfair. If the employee brings and wins that claim, the Employment Tribunal can add a 25% uplift to the compensation awarded.
The new Employment Rights Act now adds to this. Not only must an employer follow the code, but for changes to hours of work or timing of shifts, reduction in pay or time off, the change will only be allowed if the employer has serious financial difficulties which affect or will affect the viability of the business, the changes address those problems and there is no alternative to making those changes. Effectively, this means that changes will only be allowed if, without them, the business will become insolvent. Because this will apply in all but the most extreme cases, it means that businesses won’t be able to make these types of changes in future.
Other changes, such as to place of work, job title or duties, notice periods or restrictive covenants are potentially fair subject to a new fairness checklist being followed.
What the new law does not prevent is making favourable changes, such as a pay rise or promotion, subject to the agreement of new terms. The start of the new financial year is often a time when businesses look at giving pay rises so now is a good time to look at whether any terms need updating and if so the offer of a pay rise can be made dependent on signature of a new contract.
If you are wanting to make changes to contracts before the new restrictions come in, get in touch here.
Trula Brunsdon is a director and the Head of the Employment team