Fire and Rehire Rules (Employers’ Guide)

‘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.

More pressing is the new Government’s intention to prohibit fire and rehire as a practice, under the new Employment Rights Act. While details and timescales of a possible future ban are yet to be published, employers considering this as an option are required to comply with new Acas guidelines, which came into force in July 2024.

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

 

Section A: Is it Legal to Fire and Rehire?

 

Provided it is handled correctly, fire and rehire is not currently 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.

 

Section B: Acas Guidance for Employers on Fire & Rehire

 

To manage legal risk, employers should revert to government and ACAS guidance on dismissal and reengagement.

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 took effect in July 2024.

Under the new provisions, 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 also 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.

Finally, 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.

 

Section C: Impact of new Fire & Rehire Guidance on Employers

 

Under the new law, employers must provide Acas with detailed information including the number of employees affected, the proposed changes to terms and conditions, the reasons for these changes, and any efforts made to consult with employees or their representatives. This written notification must be submitted before any dismissals occur.

Failing to notify Acas as required can lead to penalties for the employer, including potential claims for unfair dismissal by affected employees. Additionally, non-compliance with the notification requirement may be taken into account by employment tribunals when considering related disputes.

Employers should engage in meaningful consultation with employees or their representatives before deciding to fire and rehire. This involves explaining the need for changes, exploring alternatives, and considering any feedback or proposals from employees. The consultation process should be genuine and aimed at reaching an agreement if possible.

Employers should maintain comprehensive records of all communications, consultations, and notifications related to the fire and rehire process. This documentation should include the rationale for changes, details of consultation meetings, written notifications to Acas, and any agreements or objections raised by employees. Proper documentation is crucial for ensuring compliance and defending against potential legal claims.

Employers are encouraged to take professional advice to ensure the new guidelines are complied with and to help support positive workforce relations through the consultation and potential dismissal process.

 

 

Section D: Fire & 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 currently 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 include:

 

a. 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.

 

b. 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.

 

c. 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.

 

d. 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.

 

e. 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.

 

f. TUPE

TUPE 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.

 

 

Section E: Considerations When Changing Employment Contract Term

 

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.

As such, when considering changing terms of a contract of employment, the employer should first look at if the contract contains a flexibility, or variation, clause. This is a term that gives employers the right to make “reasonable changes” to some conditions of employment. 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.

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.

If deciding to fire and rehire, an employer should:

 

a. Follow a fair dismissal process

b. Give the employee sufficient notice (this is either statutory notice or what is contained within their contract – whichever is the longest)

c. Offer the employee a right of appeal against their dismissal

d. 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.

 

 

Section F: Need Assistance?

 

While a potential ban on fire and rehire is on the horizon, under the law as it currently stands, dismissal and reengagement remains a measure of last resort. In the event of a tribunal claim for unfair dismissal, 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. Our 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.

 

Section G: 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 currently unlawful in itself, however, it carries significant legal risk and can cause issues with workforce relations, morale and performance. The UK Government is also progressing plans to ban fire and rehire under the provisions of the Employment Rights Bill.

 

What is the new rule regarding fire and rehire effective from July 2024?

From July 2024, UK employers are required to notify the Advisory, Conciliation and Arbitration Service (Acas) in writing if they intend to dismiss and rehire 15 or more employees within 30 days. This new rule aims to increase transparency and provide greater protection for employees undergoing changes to their employment terms.

 

Are there any alternatives to fire and rehire that employers should consider?

Yes, employers should consider alternatives such as voluntary redundancy, reduced working hours, temporary pay cuts, or renegotiating terms with employee consent. Employers are encouraged to exhaust all other avenues before resorting to fire and rehire.

 

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.