“Fire and rehire” is a term that has been in the news quite a bit recently because several high profile organisations, including British Gas and British Airways, are using this approach to try to change their employees’ terms of employment.  Indeed, according to research by the TUC, 1 in 10 workers have been “forced to reapply for their jobs on worse terms during Covid”  and they have attracted some criticism from unions, and recently by ACAS (to some degree) for doing so.  However, although this approach may have a new(ish) name, it is not necessarily a new tactic, nor is it unlawful – provided that it is handled properly.

As an HR Consultant, a question which I’m regularly asked is “How do I change my employees’ T&Cs of employment?” The challenge is – there is are many ways and often the approach depends on whether the change involves the employees having better terms or, being worse off.  With the latter, all the options have risks and are potentially fraught with the resistance!

Reasons

The current climate caused by the coronavirus pandemic has meant that many businesses have seen a dramatic fall in their income. Several have been forced to make savings, and for most businesses employment costs are the biggest single overhead. Many have had to make redundancies, and approximately 9.6 million employees have been furloughed in the past 12 months. Recovery will obviously take time, and employers who are looking to retain as many employees as possible may well look to reduce their employees’ terms of employment. This may be a temporary change, or possibly a permanent one.

When can employers legally fire and re-hire?

Under Acas guidance there are a few ways an employer can change an employment contract:

  • if there’s a flexibility clause in the employment agreement – a term that gives employers the right to make reasonable changes to some conditions of employment;
  • if the employee agrees to the change after a period of consultation; or
  • if employee representatives – for example, a trade union – agree to the change on their behalf.

Businesses need to understand and set out their case for requiring particular contractual changes, inform employees about the proposed change and to seek to secure consent to the proposed changes through consultation. Part of this also means considering if there are any other ways the business can achieve the necessary cost/efficiency savings.

Take care if relying purely on a contract clause which purports to allow employers to implement changes, by giving say a month’s notice of the change. These can be effective for minor changes, but it would be risky to rely on them for more fundamental changes to terms, e.g. pay. There are two reasons for this: firstly, if they are implemented unreasonably the employer may be in fundamental breach of contract (enabling the employee to resign and claim unfair constructive dismissal) and secondly, they may be deemed to be void for uncertainty.

If an agreement over contractual changes can’t be reached, firing and rehiring is a way an employer can force a new contract on employees. But this could lead to legal action, so you are urged to continue discussions before taking such a step and seek professional advice.

If voluntary consent cannot be obtained it may be necessary to enter into further consultation with those employees who have not consented, explaining again in precise detail the nature of the proposed contractual changes and why the changes are required.  This may be for operational reasons,  to preserve jobs, or sometimes just for the company to increase its profits. The employees should be asked for their views on the proposed changes and whether they are willing to agree them. They should also be advised of the possible consequences of refusing the changes, for example the potential of some redundancies. The employees’ views should be considered and taken into account, and hopefully agreement reached.

If the employer does have to dismiss without agreement to the imposed new terms, it may have to show a tribunal that it has consulted properly and provided the correct contractual notice before serving notice to dismiss and offering to rehire.   Another factor will be how many employees accepted the changes without the need for dismissing and offering new terms. If a substantial majority did, it will make it harder for those who did not, to argue that their dismissals were unfair.

Other factors for employers to consider in this scenario is whether the obligations to enter into collective consultation under the Trade Union and Labour Relations (Consolidation) Act 1992 are triggered. They may well be if the company has proposed to dismiss 20 or more employees at one establishment, and to offer the re-engagement.

If some employees also recently transferred under TUPE, extra regulations may apply.

What are the risks?

  • Employees may resign and claim unfair constructive dismissal for unilaterally imposed changes to T&Cs(subject to having 2 years’ service). Whether such a claim will succeed will depend on the facts of the case, including the reasons for the change and the level of consultation.
  • If employees are dismissed and rehired, they would (subject to having 2 year’s service) potentially be able to submit claims of unfair dismissal.
  • The employee may alternatively seek some other form of legal remedy, for example where there is a reduction in pay, refusing to accept the reduction and bringing a claim for unauthorised deduction of wages.
  • Another option potentially open to employees is some form of industrial action.
  • Rehired staff may be highly disgruntled and this could impact negatively on engagement, productivity and performance.
  • Finally there can be considerable reputational damage to the employer brand and this can be financially damaging too as now more than ever consumers are more likely to turn away from businesses that put profit before people.

Conclusion

In short, although “fire and rehire” is potentially lawful, it can be a high-risk strategy.  Beyond the potential legal ramifications of fire and rehire, employers need to remember to put their moral and ethical judgement front and centre.

One thing I always recommend is ensuring you have strong and well planned contracts and employee handbooks in the first place,  and that you seek specialist HR or legal advice before making such changes.

If you would like help revising terms and conditions for your employees please get in touch on Hello@HROptimisation.co.uk

 

 

 

 

Hannah Powell

 

p.s. this update is intended as a guide and is not intended to be exhaustive or be a substitute for professional advice for the specific facts of your given scenario.