Fire and rehire has recently hit the headlines as a controversial tactic that has been adopted by some employers in order to bring about contractual changes that employees have not agreed to. It involves dismissing an employee with the necessary notice and at the same time offering them a new contract on revised terms.
Industries still feeling the strain of the pandemic are resorting to the fire and rehire method as a way of alleviating the financial pressures they face. It is not new tactic and has been used by employers in the past, particularly at times of financial crisis. However, before proceeding, it is critical organisations understand the legality of a process that is not without risk.
Is firing and rehiring legal?
In short – yes, it is legal if used in the right manner, usually as a means of last resort following attempts by the employer to secure agreement to the proposed contractual changes with the employees affected. If the employer is proposing to dismiss 20 or more employees at one establishment there is an obligation to enter into collective consultation with representatives of the workforce or a trade union if one is recognised by the employer.
When can this tactic be used?
Fire and rehire can be applied in a variety of situations by employers, but generally when the employer wishes to reduce its staff costs or increase flexibility of their workforce particularly in relation to hours of work or shift patterns. Circumstances when it is sometimes used include:
- Where employers want to minimise the number of redundancies, or are looking to try to save on costs, whilst preserving the expertise and skillset of their workforce
- When negotiations break down regarding an employees’ terms and conditions
- When employers are seeking to standardise the terms and conditions of employees
- If employers are hoping to integrate further flexibility into contracts, e.g. to respond to consumer demand or to reflect change in an area of the business.
What are the risks?
Changing an employee’s terms of employment is never a straightforward task, and there are many potential hazards that employers must be aware of, especially if an employee perceives the changes as overwhelmingly negative.
Businesses risk leaving themselves open to employment tribunal claims if they terminate an employee’s contract and offer them a new one on reduced pay or benefits. Depending on their length of service, an employee could bring claims for unfair dismissal or constructive unfair dismissal, not to mention claims for a breach of contract or unlawful deduction of wages, depending on the new contractual terms.
It is also worth noting that employers must adhere to all the relevant statutory/contractual notice periods throughout the process, otherwise they risk facing claims of wrongful dismissal.
There are also the non-legal risks such as reputational damage to the employer. Organisations that have worked tirelessly to build a strong reputation in previous years, potentially risk undoing all this progress by utilising a controversial employment tactics like fire and rehire.
For over a year, the COVID-19 pandemic has been the root cause of a lot of hardship for families across the UK and using fire and rehire practice at this time is not an attractive option for employers to use unless the entire business is at risk. This is particularly the case in view of the Government support schemes made during the pandemic, including the Coronavirus Job Retention Scheme.
Are there alternatives to fire and rehire?
When it comes to implementing contractual changes, businesses should first explore other methods and approaches before considering fire and rehire.
Before proceeding, employers should check if there’s a flexibility clause within their existing contracts of employment, as this might give them the right to make reasonable changes. However, caution should be applied in relying on this as some unilateral changes cannot be imposed, regardless of the clause’s inclusion particularly in relation to fundamental terms such as pay.
The fire and rehire approach should only be employed once an organisation has explored all alternatives and has decided that the contractual changes are absolutely necessary based on sound business reasons and only after seeking the agreement of the workforce for the changes through meaningful consultation.
The potential for this course of action to negatively impact employee morale and company reputation cannot be overstated, so it is important for businesses to consider their options carefully before proceeding.
In terms of the process, ACAS recommends following a fair dismissal procedure, with employees given sufficient notice (statutory or contractual, whichever is longer) and offer employees the right to appeal.
Although fire and rehire is legal, it is controversial and often considered morally questionable. Employers must be convinced that taking such action, on balance, is worth it and should seek the support of experienced Employment Law advisers to help minimise the potential risks.
Alec Colson is a Partner and Head of Employment Law at Luton-headquartered law firm Taylor Walton. He specialises in Employment and Industrial Relations Law, advising commercial and public sector clients on all aspects of employment law.
Contact Taylor Walton on 01582 731161 or visit www.taylorwalton.com