The ‘fire and rehire’ reality

The recent ‘fire and rehire’ trend involves employers laying off employees (with contractual notice), and then re-employing them on revised terms. It is a tactic that is increasingly being used by employers to initiate changes in contracts of employment when employees disagree with the suggested alterations.

Although controversial, firing and rehiring isn’t illegal if handled correctly, nor is it a new phenomenon. There are, though, indications that the practice is growing in prevalence as many businesses struggle with the repercussions of lengthy Covid-19 restrictions. But where do businesses, and employees, stand legally when it comes to ‘fire and rehire’?

Despite this practice being outlawed in Ireland, Spain and France, it is not uncommon in the UK. In fact, the TUC reports that since the start of lockdown, nearly one in 10 UK workers have had to reapply for their jobs on poorer terms and conditions or risk being dismissed permanently.

Employees with under two years’ service are the most vulnerable, as their employment rights are vastly reduced, but any employee can be fired and rehired.

The Unite union has been highly critical of fire and rehire, citing the unfairness to employees during a time of enormous adversity, during which substantial government support has been offered to employers, including provisions such as the coronavirus job retention scheme.

Research by the GMB union reveals that three-quarters of people believe that fire and rehire should be made illegal. But for now at least the procedure remains available to employers.

When is it used?

Fire and rehire can be utilised in a number of circumstances, including:

• where there may not be a legitimate risk of redundancy
• where employers want to minimise redundancies or save on costs, while retaining the professional experience of their workforce
• when negotiations about an employee’s terms and conditions break down
• when employers seek to standardise the terms and conditions of employees
• when employers want to introduce flexibility into contracts.

The risks

An employer wishing to amend an employee’s terms of employment doesn’t have many options, and those that do exist are likely to be opposed by employees (and their unions) if the changes are detrimental to the employee.

Ending an employee’s contract and proposing a revised one that reduces pay or benefits could also open employers up to potential employment tribunal claims. If terminated employees have the necessary length of continuous service, they could then launch a claim for unfair dismissal or constructive unfair dismissal. Employees can also sue for breach of contract in the civil courts or for unlawful deduction of wages at an employment tribunal.

If businesses fail to offer the appropriate statutory or contractual notice period during the process, they could face additional claims of wrongful dismissal.

It is also important not to underestimate the likely damage that this kind of action can have on a business’s reputation, especially when websites such as Glassdoor offer prospective new recruits a handle on workplace culture. And it’s not just recruitment that may suffer – 67% of respondents in a recent GMB survey said they would be less likely to buy goods or services from businesses that had engaged in firing and rehiring.

Other options

Fire and rehire should be a last resort for organisations wanting to introduce contractual changes.

Instead, employers should first review existing contracts to check whether they contain flexibility clauses, as such clauses may well offer employers the right to make certain reasonable changes. However, it is also true that many unilateral amendments cannot be enforced irrespective of whether a contract of employment contains a flexibility clause.

If flexibility clauses are unavailable or unworkable, employers can initiate a period of meaningful consultation with the employee with a view to reaching mutual agreement on the changes.

Any decision to proceed with the dismissal and then re-employment of the workforce ought to be taken only once the employer has fully considered both the risks of legal action and the impact that fire and rehire will have on employee engagement and morale.

In terms of the method itself, the arbitration service ACAS recommends that employers adhere to a fair dismissal procedure, that they give employees sufficient notice (statutory or contractual, whichever is longer), and that they offer the right to appeal.

While fire and rehire is legal, it could be considered morally debatable. Employers will need to be convinced that embarking on that path is absolutely worth the hassle.