‘Fire-and-rehire’ in the spotlight

23rd June 2021

Changing the terms and conditions of employment can be problematic for employers but contractual variations have become increasingly prevalent as a result of the COVID-19 pandemic. The controversial use of “fire-and-rehire” by a number of large employers led the Government to ask Acas to conduct an evidence gathering exercise to learn more about the practice. The results were published in an Acas Report on 8 June 2021.

UPDATE: Since this article was written, ACAS published guidance in November 2021. Briefly, it says that an employer must first have made all reasonable attempts to reach an agreement on new terms through genuine and meaningful consultation with staff and their representatives. ACAS advised that the practice of fire and rehire is an extreme step that can damage staff morale, productivity, working relations and can also lead to industrial action. Further, on 3 November 2022, the Government confirmed that a draft statutory Code of Practice on dismissal and re-engagement will be published in the “near future” (although it was originally expected in summer 2022) and representations, including from trade unions, will be considered.

Employees will often give their consent to contractual changes, for example in the last year we have seen employees willing to agree to changes to their hours or pay in order to avoid redundancy situations. Where no consent is given, the employer will need to consider the alternative options available. One such option, where an employee does not agree to the proposed new terms, is to give lawful notice to end the contract of employment and instead offer a new contract on the new terms.  Although not a new concept, this process of firing and re-hiring has recently been brought into the spotlight with the controversial use or prospective use of “fire-and-rehire” by a number of large employers in Britain. In January this year, the TUC published the results of a poll which showed that 9% of workers had been told to re-apply for their jobs on worse terms and conditions since March 2020.

Following on from this, the Department for Business, Energy and Industrial Strategy (BEIS) asked Acas to conduct an evidence gathering exercise to learn more about the use of “fire-and-rehire” practices. The results of the Acas fact finding exercise were published on 8 June 2021.

Dismissal and re-engagement (fire-and-rehire): a fact-finding exercise (the Report)

As part of the exercise, Acas engaged with employer bodies; trade unions; professional bodies and networks with advisory contact with employers (such as employment lawyers, accountants, HR and payroll services); academics; and Acas senior advisers. The evidence gathered was largely qualitative in nature, exploring participants’ experiences and views on themes of interest including the prevalence of the practice and whether policy interventions may be needed to address the issue.

The Report, produced by Acas officials, found that during 2020 attention has been drawn to the use of “fire-and-rehire” practices as a result of the COVID-19 pandemic but that it pre-dates the pandemic by many years and is not a new phenomenon. Participants observed the widespread use of the “fire-and-rehire” practice across a wide range of sectors, in organisations of all sizes and in a wide range of workplace circumstances including:

  • Redundancy scenarios;
  • The harmonising of terms and conditions;
  • Introducing temporary or permanent flexibility into contacts in respect of working hours, shift patterns, payment entitlements and security of hours or employment;
  • Interrupting continuity of service; and
  • Negotiations around organisational responses to changes in consumer behaviour, sectoral change or changing operational needs.

The Report identified a concern that the threat of “fire-and-rehire” was becoming increasingly common as a tactic at an early stage in the negotiation process to bypass genuine workplace dialogue. Participants speculated that there may be a further increase of such practices as the Government’s COVID-19 related business support initiatives (for example furlough) are brought to an end. Participants also commented on employers using the pandemic as “smokescreen” to diminish the terms and conditions of workers.

Overall there was a wide range of views expressed about the reasonable use of “fire-and-rehire” in different scenarios with some participants regarding any use of such practice as unreasonable whilst others recognised that it could be reasonable if used as a last resort, provided it is driven by a genuine business need and is preceded by negotiations attempting, in good faith, to reach agreement on proposed changes.

Current legal protections

There are a number of existing legal protections and obligations that employers may have to comply with, if considering “fire-and-rehire”, depending on the specific circumstances.

An employment contract is a legally binding agreement and at common law a contract may only be amended in accordance with its terms or with the agreement of all parties. Such agreement can be either expressly given or implied, either through a clause in the contract permitting the variation, the consent of individual employees or, alternatively, trade unions may agree to the changes if the relevant contractual terms are covered by a collective agreement.

Where an agreement is not reached, the employer may seek to enforce the variation of contract through unilaterally imposing the changes and relying on implied consent (for example because the employee continued to work under the new terms without protest) or through the “fire-and-rehire” process. However, where an employer decides to enforce contractual variation they need to ensure compliance with legal obligations and protections:

  • Wrongful dismissal– employers still need to ensure that employees are provided with the required statutory or contractual notice period to terminate the contract of employment;
  • Breach of contract and constructive dismissal– if a change, which is less favourable to the employee, is imposed unilaterally then it will constitute a breach of contract unless the employee agrees to such change through express or implied consent;
  • Unfair dismissal– if the employer chooses to dismiss then they would have to show there was a potentially fair reason for dismissal (for qualifying employees), the most relevant in “fire-and-rehire” cases are that of redundancy or some other substantial reason (SOSR) if there was a legitimate business reason for the change. The employer must also act reasonably in treating the reason as sufficient to justify dismissal and follow a fair procedure;
  • Collective redundancy consultation– if an employer proposes to dismiss 20 or more employees within a period of 90 days or less then collective consultation will be triggered;
  • Inducements relating to collective bargaining– in circumstances where there is a recognised trade union, employers are prohibited from making offers to workers with the “sole or main purpose” being that any terms will no longer be covered by a collective agreement; and
  • The Transfer of Undertakings (Protection of Employment) Regulations (TUPE)- TUPE provides protections against both dismissal and changes to terms and conditions in the context of a business transfer.

Participants expressed differing views about perceived strengths and gaps in the existing protections from those who felt strongly that the current level of protection clearly falls short, to others who felt the current balance of protections is broadly about right.

So what happens next?

There were mixed views on the need for measures to address the issue of “fire-and-rehire”. Potential legal reform was suggested with both legislative and non-legislative options put forward.

  1. Suggested legislative options included: tightening up the law around unfair dismissal; enhancing the requirement and capacity for Employment Tribunals to scrutinise business’ rationale for change in relevant cases; protecting continuity of employment in fire-and-rehire scenarios; and strengthening employers’ consultation obligations around proposed dismissals.
  2. Suggested non-legislative options included: improved guidance for employers on relevant legal obligations and good practice; using data on fire-and-rehire to inform decisions around public procurement and access to Government funding; and publishing “name and shame” data on employers’ use of “fire-and-rehire” practices on a Government website.

However, some participants expressed concern that any particular remedy might create a worse problem than the one it is intended to address, for instance by driving more redundancies or business failures. It is therefore important to ensure the balance is right between protecting business flexibility and protecting employees’ power to negotiate a fair bargain.

Views were also expressed about the relevance of a number of wider policy considerations, for example: extending Government funding for sectors where fire-and-rehire is particularly prevalent; providing longer-term information about the future of the furlough and related business support schemes; improving channels of communication in non-unionised workplaces; and, improving access to remedies at the Employment Tribunal by alleviating the strain on the Employment Tribunal system at this time.

On 8 June, Paul Scully MP, the Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy, set out the Government’s position in respect of the Report and confirmed that it is not currently proposing to legislate to ban “fire-and-rehire” practices and that the Government has instead asked Acas to produce more detailed guidance. This was confirmed by the Acas Chief Executive who stated that further guidance would be produced to encourage good workplace practices when negotiating staff contracts. In his statement, Paul Scully MP made it clear that the Government does not accept “fire-and-rehire” as a negotiation tactic but that any reform needs to also take into account business needs in this difficult time.

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