Myth-busting fire and rehire employment practices

The “fire and rehire” tactic is increasingly being used by employers to bring about changes to contracts of employment where employees disagree with the proposed alterations. In practice, it involves employers dismissing employees (with contractual notice), and then offering them new employment on revised terms.

Though certainly controversial, it isn’t illegal, provided it is handled properly. It’s also nothing new despite growing media interest driven by the pandemic.

However, there are signs that this practice is becoming increasingly prevalent across a range of sectors, a likely result of businesses struggling in the wake of COVID-19. But what are the facts, and where do businesses, or for that matter employees, legally stand when it comes to fire and rehire?

What is the legality of firing and rehiring?

Although firing and rehiring is currently banned in Ireland, Spain and France, it’s common practice within the UK.  In fact, research by the TUC shows that since March 2020, almost one in 10 UK workers have been forced to reapply for their jobs on worse terms and conditions, or risk being let go permanently.

It’s employees with less than two years’ service that are usually at the greatest risk as a result of their limited employment rights, although this isn’t always the case. Lately, however, there is a growing perception that the pandemic has been used as a smokescreen to reduce workers’ rights.

Unite have been highly critical of the practice, specifically citing the inequality this creates for employees at a time of immense hardship in the aftermath of COVID-19, during which generous government support was continually provided for employers, including arrangements like the Coronavirus Job Retention Scheme.

Statistics gathered by the GMB union back this sentiment by showing that three quarters of people think fire and rehire should be outlawed. Nevertheless, for now, the practice remains as an option for employers dealing with a thorny issue.

When is it used?

Rightly or wrongly, firing and rehiring is applied in a variety of situations by employers; there isn’t a uniform perspective on when it is, or isn’t, reasonable use. Circumstances of use may include:

  • wherever employers are conscious there may not be a genuine risk of redundancy in existence;
  • where employers want to reduce the number of redundancies, or are looking to try and save on costs, whilst retaining the knowledge and skillset of their workforce;
  • when negotiations regarding an employees’ terms and conditions break down;
  • when employers seeking to harmonise the terms and conditions of employees; or
  • if employers are hoping to introduce flexibility into contracts, eg to react to consumer demand or to reflect change in the area of business.

What are the risks associated with firing and rehiring?

When employers want to change an employee’s terms of employment, there is often no simple solution. If the desired changes bring about detriment to the employee, all options have risks for employers and are likely to be resisted by employees (and their unions).

Terminating an employee’s contract and offering them a new one on reduced pay or benefits could leave employers open to Employment Tribunal claims. Dismissed employees, if they have the requisite length of continuous service, could bring claims for unfair dismissal or constructive unfair dismissal. Employees could also bring claims for breach of contract or unlawful deduction of wages claims in the civil courts and Employment Tribunal respectively.

If employers fail to provide the relevant statutory or contractual notice period during the process, they could also face claims of wrongful dismissal.

Plus, let’s not underestimate the potential damage to a business’ reputation with websites like Glassdoor in existence allowing prospective new recruits and customers observe employer’s treatment of employees and workplace culture Indeed, 67 per cent of voters in a GMB union survey indicated that they would be less likely to use businesses who had employed the use of fire and rehire, which could have long-reaching repercussions for employers.

Are there other options?

Firing and rehiring needn’t and shouldn’t be the first choice of action when wanting to introduce contractual changes; it is often a last resort.

Employers should check if there’s a flexibility clause written into contracts. Whilst this may give employers the right to make reasonable changes, caution should be applied in relying on this as many unilateral amendments cannot be imposed regardless of the inclusion of this clause. Alternatively, employers can commence a period of meaningful consultation with the employee with a view to agreeing to the changes.

Employers should only opt to proceed with dismissing and rehiring employees once they have considered all other possible options, decided the changes are absolutely necessary, and considered both the risks of legal action, and the impact on employee engagement and morale. In terms of the process, ACAS recommends that, they follow a fair dismissal procedure, give employees sufficient notice (statutory or contractual, whichever is longer) and offer employees the right to appeal.

In essence, although firing and rehiring is legal, it could be considered morally questionable and employers need to be confident that taking such action, on balance, is worth it.

Tina Chander is the Head of Employment Law at Midlands law firm, Wright Hassall and deals with contentious and non-contentious employment law issues, acting for small businesses to large national and international corporates. She advises on a variety of employment law matters, including all aspects of employment tribunal proceedings and appeals.

Wright Hassall is a top-ranked regional law firm, providing legal services including: corporate law; commercial law; litigation and dispute resolution; employment law and property law. The firm also advises on contentious probate, business immigration, information governance, professional negligence and private client matters.

Image via Pxfuel.