Employment

Cracking Down on ‘Fire and Rehire’

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‘Fire and rehire’ refers to the practice of seeking to unilaterally amend employees’ contracts of employment by dismissing them and offering to re-engage them on new terms.

Following public backlash against the use of fire and rehire tactics in the wake of COVID-19, the Government announced plans to introduce a new Statutory Code of Practice to clarify how employers should go about varying contractual terms. Earlier this year the Government released a draft code which, subject to parliamentary approval, is likely to come into effect before the end of 2024.

What is a Statutory Code of Practice?

A statutory code of practice is a form of guidance document setting out best practice for businesses undertaking certain processes. In the case of a claim being raised, whether an employer or employee has adhered to the code must be taken into consideration by the Tribunal following which it has the power to increase or decrease compensation awarded by 25% depending on the parties’ conduct.

The Acas code of practice for disciplinary and grievance procedures, for example, is a statutory code with breaches of that code being dealt with in the same way already (with compensatory awards being uplifted or decreased by 25%).

When will the new statutory code apply?

Once in force, the new code will apply if an employer who wishes to make changes to employment contracts proposes to dismiss and offer to re-engage employees if agreement to those changes cannot be reached.

The code will not apply if the reason for any such dismissal would be redundancy. For example, if an employer proposes to reduce hours and pay as an alternative to redundancy and is unable to agree this with staff, any subsequent dismissals should follow a redundancy process.

What are employers expected to do to comply with the code?

The intention behind the new code is to ensure that this fire and rehire tactic is used only as a last resort and not raised as a means of leverage over employees to force changes through without meaningful engagement with them. As such, employers will be expected to inform employees of proposed changes and consult with them (or trade union representatives where appropriate).

Employers will be expected to:

  • provide reasonable information to enable employees or representatives to understand the rationale behind the proposed changes, ask questions and raise counterproposals.
  • provide full explanation where information requested cannot or will not be provided.
  • re-examine their proposals in light of consultation if it is clear that changes will not be agreed.
  • contact Acas for advice if they consider they may opt to dismiss and re-engage staff before raising this possibility with employees.

If it is decided that dismissal and re-engagement is the only remaining option then employers must give as much notice as possible. The code even goes so far as to state that employers should consider whether the employees would benefit from an enhanced notice period to help them adapt to the proposed changes (e.g. where employees may then need to revise their childcare arrangements) or other practical support such as counselling.

What is the practical effect on employers?

It is important to bear in mind that there is a limit to how much change be achieved through the use of fire and rehire tactics particularly where a refusal to accept changes stems from matters outside of work (i.e. childcare) which may mean that it’s not possible to accept the change. Equally, an employer who does effect dismissals and makes offers of re-engagement must always be alive to the risk that some dismissed employees may refuse to accept re-employment and opt instead to present claims for unfair dismissal. This is particularly risky where dismissal is threatened from the outset (we have never recommended this) and employers have not tried to find out what the barriers to accepting the new terms are. These will vary from person to person and so it’s really important to take all comments on board.

As many employers will know, whether or not you have ‘acted reasonably’ is a key issue in claims for unfair dismissal. This is a very vague and unhelpful phrase. Whilst compliance with the code isn’t a legal obligation, it is a useful roadmap for employers and promises to shed some light on how to act reasonably in these circumstances.

In our experience, most changes to terms can be agreed once employees understand why they are proposed. Even if the change is something they’re unable to accept due to personal circumstances, an employee who understands the rationale for a change is more likely to be open to, or even suggest, alternatives. We always recommend having flexibility in your approach and being open to compromise.

With the exception of contacting Acas for advice, the guidance given is line with how we would advise clients wishing to make changes to terms. As such we feel that for us and those we advise, the practical effect will be minimal.

If you are considering whether to make changes to employee terms and would like support, please don’t hesitate to contact our Employment team.

(April 2024)