Dismissal and Re-Engagement under Fire
The practice of dismissal and re-engagement – commonly known as “fire and re-hire” – is the much maligned and misunderstood process of dismissing employees and offering re-engagement on new terms and conditions of employment. Lucy Flynn, employment lawyer with the Group’s specialist corporate and commercial practice, Beyond Corporate, explains.
The use of fire and rehire as a tactic for employers seeking to reduce employment costs has come under intense and increased scrutiny during the Coronavirus pandemic, with some reports suggesting that one in ten workers have been put in a position where they have been forced to re-apply for their jobs on less favourable terms. This led the Advisory, Conciliation and Arbitration Service (Acas) publishing new advice this month aimed at helping businesses maintain good employment relations and reach agreement on any change to terms and conditions of employment.
What is Fire and Re-Hire?
When an employer seeks to change existing terms and conditions of employment, but is unable to reach an agreement with its employees or their recognised representatives (such as a trade union) to do so, the termination of employment and offer of re-engagement on the new terms and conditions in these circumstances is fire and re-hire.
Why use it?
March 2020 saw the introduction of the Coronavirus Job Retention Scheme – better known as furlough – and for some employers this was the first ever foray into changing employees’ terms and conditions of employment. Since then, the continually fluctuating economic climate due to the impact of COVID-19 has resulted in the ongoing need to reorganise, re-shuffle and reduce costs to avoid or limit wholesale redundancies across many sectors; changing terms and conditions of employment is often the only way to achieve this.
The starting position with changing terms and conditions of employment is that employers should only do so with the consent of the employees.
Although some employment contracts have a clause which purports to give the employer a general and overarching right to make changes to the terms of employment without the agreement of the employee, such clauses rarely work to give an unfettered ability to make meaningful changes without the consent of the employee. In practice, only the clearest drafted express terms regarding a specific change will be interpreted in favour of the employer and allow a change to be made without consent.
In most cases, if an employer makes a unilateral change to its employees’ terms and conditions of employment, this would constitute a breach of contract and give the employee the right to:
* work under protest under the new terms and bring a claim for breach of contract – also known as “standing and suing”
* work under the new terms but treat as terminated, and claim unfair dismissal from, employment under the old terms
* refuse to work under the new terms
* in the event of a breach going to the heart of the contract, such as a pay-cut, resign and bring a claim against the employer for constructive unfair dismissal
As such, when faced with a genuine need to make changes, and given the pitfalls of making changes to the terms and conditions of employment without agreement, fire and re-hire is often the better option of last resort.
When to use it?
Acas has made it clear that fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations.
In its guidance of November 2021, Acas deals with both fire and rehire and imposing new terms of employment without agreement and states that employers should thoroughly explore all other options before deciding to take either of these steps. They both carry significant legal risks and can damage working relations, morale and levels of performance in your organisation.
As such, it should be used with caution and only after extensive attempts to reach agreement on any proposed change.
How to use it
Early in 2021 Boris Johnson indicated that the use of fire and rehire as a negotiating tactic was unacceptable. Acas, in its November guidance, confirms that firing and rehiring employees should be a last resort and used only after an employer has made all reasonable attempts to reach agreement through a full and thorough consultation.
Employers should consider whether any alternatives are available: for example, making non-permanent arrangements, asking for volunteers for redundancy or change, limiting changes to new recruits or “buying off” the change with other incentives, such as additional holidays.
However, and despite its unpopularity, if changes cannot be agreed then fire and rehire can still be lawful if done properly.
For dismissal of any employee to be fair, there must be a fair reason for dismissal and the employer must have followed a fair process. Employers who cannot avoid firing and rehiring and can show that there is a sound business reason for doing so may be able to rely on “some other substantial reason” (SOSR) as the potentially fair reason for dismissal under the Employment Rights Act 1996.
Where a proposal to fire and rehire involves 20 or more employees, the employer should be mindful of its legal duty to perform a collective consultation and follow the specific rules regarding collective consultation over a specific time period, which include:
* notifying the Redundancy Payment Service using form HR1 that 20 or more redundancies are being considered
* consulting with trade union or employee-nominated representatives
* providing specific information to the representative(s)
Where there are fewer than 20 employees involved (and in any event) employers should try to reach agreement on changes to terms and conditions with as many employees as possible before making a decision to fire and re-hire on the new terms.
If an employer follows a proper consultation process, following which a change cannot be agreed, and dismissal and re-engagement cannot be avoided, then the employer should:
* establish a sound business reason to justify dismissal
* follow a fair procedure
* give (or pay in lieu of if the contract allows) the correct contractual notice to the employee
* make the offer to re-engage on the new terms to being immediately on termination