What now for fire and rehire?

‘Fire and rehire’ relates to the process where an employee’s contract of employment is terminated and the employee is re-engaged under new terms. Where re-engagement is offered to an employee, the termination still constitutes a dismissal and the employee may be entitled to bring claims for unfair dismissal.

Where there is a proposal to dismiss more than 20 employees at one establishment within a 90-day period, collective as well as individual consultation obligations are triggered.

In 2022, P&O dismissed around 800 employees, replacing them with agency workers and failing to carry out any form of individual or collective consultation. While perhaps not a conventional fire and rehire case, it prompted a consultation of existing practices by the then Conservative government. It was this consultation that brought about the draft Code of Practice on dismissal and re-engagement. It recognised that it would not be appropriate to implement a complete ban on dismissal and re-engagement, noting that there can be some situations in which, when used correctly, it can be a helpful tool.

Since then, we have seen the likes of British Airways implement fire and rehire tactics in an attempt to dismiss employees, only to offer them the same position but on less favourable terms. More recently, we have seen the Supreme Court’s decision on Tesco.

The Supreme Court held that Tesco was not entitled to terminate employee contracts and offer to rehire them on less favourable terms. However, it is worth noting that the facts surrounding this case go beyond the standard fire and rehire cases we have seen previously. Nonetheless, the recent judgment serves as a timely reminder to employers to ensure a meaningful approach is adopted from the outset and clear communication is used during the consultation process.

New statutory Code of Practice

The new statutory Code of Practice came into force in July and provides practical guidance to employers and employees where an employer proposes to make changes to one or more of its contracts of employment. The code envisages that, if agreement cannot be reached, an employer might opt for dismissal and re-engagement. Key points of the code include, but are not limited to:

• Ensuring meaningful consultation takes place. This involves making sure employees understand the employer’s objectives and the nature of its proposals, including that dismissal may be required to impose the changes.
• In circumstances where the employees’ agreement is not forthcoming, the employer should re-examine its business strategy and take into account the potential negative impact of proceeding.
• Employers should not use threats of dismissal as a negotiating tactic if dismissal is not in fact contemplated.
• Employees should be given as much notice as possible of any dismissals, complying with employees’ contractual notice period or statutory notice period (whichever is the greater) with flexibility to provide a longer notice period if some employees need or require additional time – such as adapting childcare arrangements or planning new journeys to work where working hours may be different.
• Re-engagement of employees on new contractual terms should not be used by employers as a chance to break employees’ period of continuous employment.
• Employers should consider what other practical support could be offered to employees, such as relocation assistance or career coaching.
• Employers should contact Acas for advice before raising the prospect of fire and rehire with their workforce. However, it remains unclear as to what role Acas is expected to play in these circumstances.  

The code emphasises that employers seeking to change contractual terms and conditions should only use fire and rehire as a last resort, having exhausted all other options. While the code was introduced to safeguard employee rights, the practical implications remain unclear. However, employers will be sensible to act quickly and adapt their processes to reflect these recent changes.

What this means for employers

While employees cannot make a standalone claim for an employer’s failure to follow the code, they may bring a claim arising from a fire and rehire situation (such as an unfair dismissal and/or discrimination claim). In circumstances where employers are found to have unreasonably failed to comply with the code’s requirements, a tribunal can increase compensation by up to 25%.

Notwithstanding these recent changes, it is also worth noting that the code may be subject to future amendment given that the new Labour government has indicated plans to introduce stricter measures against fire and rehire practices, labelling the current code as ‘inadequate’.

We are yet to see what these stricter measures may look like but it is certainly a topic that remains under the spotlight.

James Townsend is a partner at Payne Hicks Beach, London