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Fire and Rehire Rules (Employers’ Guide)

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‘Fire and rehire’ refers to when an employer dismisses an employee and rehires them on new terms. The new terms are generally less favourable for the individual than under their previous contract of employment.

Fire and rehire is not a new strategy and, provided it is handled correctly, it is not unlawful. However, in most cases, any change usually involves employees being worse off, which means that the process is fraught with risk and difficulty. Firing and rehiring is typically used by employers who wish to vary the terms of their employees’ contracts but could not do so by agreement. This practice is also known as dismissal and re-engagement.

Employers looking to retain as many employees as possible while reducing overheads may be considering altering their employees’ terms of employment to reduce costs, such as contractual entitlements or working hours. But where affected employees do not consent to the changes, this can create legal risk as well as morale and performance issues.

Economic uncertainty and difficulties arising from the coronavirus pandemic led to many employers reviewing their workforce costs with a view to making savings where possible. Many adopted the fire and rehire policy, drawing criticism from their workforce and the media. ACAS then undertook a review into firing and rehiring, issuing employer guidance in November 2021 (see below). The Government blocked a Private Member’s bill designed to prevent employers using this practice, but as yet there is no confirmation whether, as a result of ACAS’ findings, the Government considers legislative action appropriate.

 

Is it legal to fire and rehire workers? 

ACAS has produced guidance for employers on the use of firing and rehiring, following its review into this practice earlier in 2021. The guidance provides a reminder of employee rights in relation to varying contract terms and advises employers to explore and exhaust all other options to change employment contract terms before resorting to fire and rehire.

When considering changing terms of a contract of employment, the employer should first look at:

  • If the contract contains a flexibility clause. This is a term that gives employers the right to make “reasonable changes” to some conditions of employment.
  • If the employee affected by the change agrees to it after a period of consultation. Or,
  • If a trade union or other employee representatives agree to the change on the employee’s behalf.

 

Employers should set out their rationale for requiring the change, and inform employees about any proposed changes in detail, and try to obtain their consent through consultation. Part of such a process should also mean consideration of other ways the business can make costs savings.

If employers cannot get the voluntary agreement of their employees, it may be necessary to extend the consultation to those employees who have not agreed, explaining why the changes are needed to protect their job from redundancy, for example.

Under fire and rehire, such extended consultations should make clear the result of non-compliance that any employees who do not agree will have their employment terminated and they will be offered a new contract on revised terms. A dismissal in these circumstances is still a dismissal, and an employer must be careful if they are to avoid a claim for unfair dismissal.

If deciding to fire and rehire, an employer should:

  • Follow a fair dismissal process
  • Give the employee sufficient notice (this is either statutory notice or what is contained within their contract – whichever is the longest)
  • Offer the employee a right of appeal against their dismissal
  • Any changes to the employees terms and conditions of employment should not take place until they have been fairly dismissed and rehired under the new contract.

 

Now more than ever, customers are “turned-off” by companies that are seen to put profit before people. This can really damage a business’s reputation from which they may struggle to recover, which in turn adds to costs pressures.

Notwithstanding the legal consequences of fire and rehire, employers have an ethical and moral judgment to make. Firing and rehiring is usually a business’s last resort, not least because of the reputational fall-out, but damaging for employees, their well-being, and morale, particularly if the process has been insensitively managed.

 

Employee protections against fire and rehire

If an employer is unable to reach an agreement with their employees on changes to a contract, they may decide to fire and rehire them by giving the required notice, and then offer to re-employ them on new terms. As previously stated, firing and rehiring is not unlawful, however there are various statutory protections afforded to employees that employers have to consider.

The main legal protections that are relevant here are:

  • Protection against wrongful dismissal – this occurs when an employer dismisses an employee in breach of contract. This can occur, for example, if an employer has not given the employee sufficient notice as set out in their contract of employment. Such claims are brought in civil courts as opposed to an employment tribunal and will be concerned with the fairness of the dismissal. It will look at whether the employer observed its contractual obligations.
  • Protection against unfair dismissal – this applies to employees who have worked for their employer for two or more years. A dismissal will be deemed unfair unless it is for a potentially fair reason listed in the legislation and the employers decision to dismiss the employee was reasonable in the circumstances. As stated above, this can include SOSR, such as reorganising or restructuring a business. Whether a dismissal is reasonable will vary from case to case.
  • Breach of contract/constructive dismissal – where a less favourable change is imposed on employees without dismissing them, it will amount to a breach of contract unless the employee has agreed to the change either expressly or given implied consent. Qualifying employees (those with two years’ service) might resign and claim constructive unfair dismissal.
  • Duty to consult in cases of collective redundancy – under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), if an employer is planning to dismiss as redundant twenty or more employees at one premises within a period of 90 days, they must consult with employee representatives. Consultation must begin 30 days prior to the first dismissal taking place. This is increased to 45 days if there are more than 100 employees potentially being dismissed.
  • Collective bargaining inducements where there is a recognised trade union. Section 145B TULRCA prohibits any employer from making offers to employees with the “sole or main purpose” that their terms of employment will not, or no longer be, determined by a collective agreement.
  • TUPE – this provides protections against dismissal and variation of contractual terms under the Transfer of Undertakings (Protection of Employment) Regulations in the context of a business transfer. Dismissals will be unfair and any contractual changes made rendered void if the only or principal reason for the transfer was to harmonise terms and conditions for existing employees.

 

No automatic right to fire and rehire

Fireingand rehiring is considered by ACAS to be an option of last resort, used only when all other options have failed to result in an agreement to change. Employers must first consider other solutions, such as negotiating a reduction of terms, being open and transparent with employees about the problems facing the business. Involve HR at the earliest opportunity and communicate in a way that makes employees feel looked after and respected. It’s a policy that should be reserved for those employees who either refuse to change or are resistant to it.

An employer does not have an automatic right to fire and rehire employees. Before looking to adopt a fire and rehire approach, the employer would need to show there are good business reasons to implement such a process, although it does not have to show a reduced requirement for work.

Employers must demonstrate there is a pressing business need in order to justify dismissals, this is often referred to as “Some Other Significant Reason” (SOSR) for dismissal. An employer may need to take immediate action to avoid redundancies for example, but it needs to be something serious and substantive to satisfy an employment tribunal that it was reasonable in all the circumstances of the case to go down the route of fire and rehire.

 

Changing employment contract terms 

As with any contract, a contract of employment cannot be unilaterally changed by any of the parties without the agreement of the other. That said, some contracts include terms or clauses that allow employers to alter, or implement changes, usually by giving a certain amount of time before the change takes effect. Such clauses can be effective for minor changes, but it would be risky from an employment law perspective to rely on them for more fundamental changes, such as substantial changes to working hours or pay.

In this instance, there are two reasons an employer could find themselves in an employment tribunal:

  • The changes have been implemented unreasonably causing the employer to be in fundamental breach of contract. This enables the employee to resign and claim unfair constructive dismissal.
  • Any changes may be considered void because of uncertainty.

 

However, even if variation or flexibility clauses are evident in an existing employment contract, any changes must be proportional, in good faith, and not outside what was envisaged when the clause was originally drafted.

If there is a major change being considered to an employee’s terms and conditions, a variation or flexibility clause is unlikely to be enough. Employment tribunals interpret ambiguity in a contract against the party seeking to rely on it. In practice, this means employers should not count on benefiting from uncertainty or vagueness within their contracts.

 

Best practice advice for employers 

  • Being able to provide the business’s latest financial reports and evidence of the shortfall the business was facing at the time of the fire and rehire process, as well as any other measures put in place prior to resorting to firing and rehiring, may assist if the case results in an employment tribunal claim.
  • Fire and rehire should only be used as a last resort. If it is not, it is extremely unlikely an employer could defend a claim. An employment tribunal would expect an employer to have acted “reasonably”, to have explored other avenues, and at the very least attempted to seek an agreement with employees first.
  • Do not forget your procedures. Most employees facing dismissal should be invited to a meeting in order to discuss the issues and offered a chance to appeal. This is besides any collective consultation that might have taken place (depending on the numbers involved).

 

Need assistance?

Generally speaking, the use of fire and hire only tends to make the news when it has been badly implemented, which usually happens when businesses are experiencing great hardship. In the rush to reduce overheads and save the business, they have made decisions that have landed them in hot water and rather than resolving their problems, have merely added to them.

DavidsonMorris’ HR specialists can help with all aspects of workforce management including exits and settlements. Working closely with our specialists in employment law, we deliver expert advice on HR best practice in areas such as employee retention and engagement, and organisational culture. For help and advice with a specific issue, speak to our experts.

 

Fire & rehire FAQs

What is fire and rehire?

Fire and rehire is a practice of imposing different contract terms on employees by dismissing them and rehiring them on the new terms, typically without the employee's agreement.

Is fire and rehire legal in UK?

Fire and rehire is not unlawful, however, it carries significant legal risk and can cause issues with workforce relations, morale and performance.

Can you be rehired after being fired?

Yes, however firing and rehiring should only happen as a last resort to other ways of changing contract terms. The employer must ensure they have fairly dismissed the employee from the first contract before rehiring under new contractual terms if they are to avoid a claim for unfair dismissal.

Last updated: 12 November 2021

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