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Fire and Rehire: the Controversial Practice Explained

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After recent controversies involving big businesses including British Airways, the UK Government confirmed on 25 May that it was still considering a highly anticipated report from ACAS concerning the use of ‘fire and rehire’ tactics.  The announcement follows mounting pressure from unions and opposition MPs to outlaw the practice, the use of which has increased during the Covid-19 pandemic.

What is ‘firing and rehiring’?

Typically, an employer is only entitled to vary the terms of an employment contract if the employee agrees to the variation. However, if an employer is unable to vary the terms of the employee’s contract by agreement, one option is for it to dismiss the employee and offer to rehire them on new terms. The purpose of this is often financial (e.g. to reduce staff salaries in order to save costs) but can also be non-financial (e.g. amending employees’ hours of work for logistical reasons).

Why is it controversial?

The practice of dismissing and rehiring employees is often seen as controversial as the new terms offered to the employee are usually detrimental.

In recent months, a growing list of high-profile businesses have faced a backlash for using these tactics to enforce unfavourable changes to their employees’ contracts. The latest business to become embroiled in the controversy is Argos, which is accused of using the practice to enforce changes such as a reduction in annual leave and a requirement for employees to increase their pension contributions.

As employees risk unemployment if they refuse to agree to the new terms, the practice of dismissing and re-hiring can create a significant power imbalance between employers and employees during contract amendment negotiations. This can often result in employees being placed under undue pressure to accept less favourable terms.

What are the potential legal repercussions?

Whilst the practice of dismissing and rehiring employees has not been outlawed, employers should be mindful that making changes to employment contracts can be a complex legal matter which can leave them vulnerable to claims in the Employment Tribunal.

In particular, there is a risk that employees may bring a claim for unfair dismissal if they are dismissed or if they feel forced to resign rather than accept the new terms. There will also be cause for a wrongful dismissal claim if an employer, when dismissing and offering re-engagement, fails to give an employee the correct amount of notice.

In addition to this, if 20 or more employees are being dismissed and rehired, an employer can face legal action if it does not hold a ‘collective consultation' process with any recognised trade unions or employee representatives.

How should an employer approach dismissing and rehiring employees?

Ultimately, it is sometimes necessary for businesses to take steps to change the terms of employment for commercial reasons.

However, before dismissing and rehiring employees, an employer should:

  1. Ensure there is a justifiable business rationale for making changes to employment contracts.
  2. Consider whether there are any alternative ways to cut costs e.g., voluntary redundancies, recruitment freezes or offering sabbaticals.
  3. Obtain legal advice on the potential legal ramifications of dismissing and rehiring employees.
  4. Communicate and consult with the employee to ensure that they have made every effort to reach an agreement before taking steps to dismiss them.
  5. Follow a fair dismissal procedure, including offering the right of appeal.
  6. Give the employee the correct amount of notice of dismissal, even if offering them immediate re-engagement.

For more information or advice, please contact Darwin Gray's Employment and HR team.