Fire and Rehire Rules (Employers’ Guide)

fire rehire

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‘Fire and rehire’ refers to when an employer dismisses an employee and rehires them on new terms.

Also known as dismissal and re-engagement, 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 because te new terms are typically less favourable for the individual than under their previous contract of employment.

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.

Notwithstanding the legal consequences of a ‘fire and rehire’ approach, employers have an ethical and moral judgment to make. Now more than ever, customers are averse to employers 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. Firing and rehiring is therefore typically seen as a last resort, not least because of the legal risk, as well as the reputational fall-out and the damage to employee morale and wellbeing, particularly if the process has been insensitively managed.

In this guide, we explain the rules on firing and rehiring, and the key considerations for employers considering taking the approach to varying employment contract terms.

 

Is it legal to fire and rehire workers?

Provided it is handled correctly, fire and rehire is not unlawful.  However, an employer does not have an automatic right to simply fire and rehire employees. Firing and rehiring is considered to be an option of last resort, used only when all other options have failed to result in an agreement to change. But since in most cases any changes usually involve terms that are less favourable for affected workers, the process can be fraught with risk in relation to workforce relations and legal obligations.

 

Guidance for employers on fire & rehire

Employers should revert to government and ACAS guidance on the use of fire & rehire practices:

 

Code of Practice on dismissal & engagement

In February 2024, the Government published a revised Code of Practice for employers on ‘firing & rehiring’. The guidance is largely unchanged from the draft Code initially published in January 2023, although some changes have been implemented following public consultation. The Code is now awaiting Parliamentary approval, potentially taking effect later in 2024.

The key provisions for employers include:

  • Employers must make sure that the right people are receiving information from them and are consulted as required, whether they be trade union representatives, employee representatives, or individual workers. This will be contingent upon the situation as well as any relevant legal requirements.
  • Employers are required to give workers as much information as they reasonably can, as soon as they reasonably can, so that they can examine the proposed changes, understand the rationale behind them, and submit counterproposals. The Code sets out the details that an employer must think about giving, including the identities of persons who will be impacted by proposed changes and the rationale behind them.
  • The parties should engage in good faith consultation on the proposed adjustments for as long as is reasonably possible in order to get to a mutually agreeable conclusion. All viable alternatives should be seriously taken into consideration by the employer.
  • Employers are not allowed to use the threat of termination as a ‘bargaining chip’ to place undue pressure on an employee when they are not considering termination as a means of accomplishing their goals. They can also not bring up the possibility of dismissal and re-engagement excessively early. Re-engagement and dismissal should be a measure of last resort.
    When it becomes evident that some or all of the suggested changes will not be accepted by those affected, the employer ought to reconsider its plans while considering input from relevant parties. The Code outlines several considerations that an employer must make during this re-examination process, including the potential drawbacks of implementing the suggested changes, the possibility that some workers may be more negatively impacted than others, and whether there are any other options for accomplishing the goals.
  • Before discussing with employees the possibility of termination and reengagement, the employer should first contact Acas.

While there is no specific legal claim for failing to meet the standards under the Code, in the event of relevant claims, such as unfair dismissal, tribunals can impose a potential uplift of up to 25% in compensation for unreasonable failure by an employer to follow the Code.

 

ACAS guidance

ACAS produced guidance for employers on the use of firing and rehiring, following its review into this practice 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:

 

Fore & rehire: employee rights

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. Before looking to adopt a fire and rehire approach, 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. The employer would then need to show there are good, pressing business reasons to implement such a process and justify dismissals, this is often referred to as “Some Other Significant Reason” (SOSR) for dismissal.

The main legal protections for employees that are relevant here include:

  • 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.

 

 

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.

 

Need assistance?

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).

In addition, 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.

It’s also important to involve HR at the earliest opportunity and communicate in a way that makes employees feel looked after and respected.

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. DavidsonMorris’ HR specialists can help with all aspects of workforce management including dismissals, re-engagements and settlements. Working closely with our specialists in employment law, we deliver expert advice on HR best practice in areas such as contractual and statutory obligations to minimise legal risk while promoting positive employee relations. 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: 21 February 2024

Author

Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.

She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.

Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals

About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility.

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners, we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

Legal Disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct at the time of writing, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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