Fire and Rehire
Fire and rehire or, as it is more formally termed, dismissal and re-engagement, is controversial and currently a focus for much debate. The approach is certainly not a new one, and much as with zero hours contracts a year or two back, has become the target of considerable trade union ire.
So, what exactly is fire and rehire? As with any contract, the terms of an employment contract cannot be unilaterally altered by one of the contracting parties. Therefore, when an employer seeks to change terms to an employee’s detriment – for example, to replace an expensive final salary pension scheme with a cheaper defined contribution scheme, or perhaps to reduce working hours and/or pay – and the employee will not agree, the employer will sometimes impose the change by terminating the contract (“fire”) and offering to re-engage on a new one which reflects the employer’s preferred terms (“rehire”).
The practice has been in the news again in recent months. There was something of an increase in fire and rehire amongst employers seeking to limit the financial stresses of the pandemic; and there then followed an unsuccessful attempt last year to pass legislation outlawing the practice.
Acas then published guidance in November to help employers explore all other options before considering fire and rehire, at the government’s request.
And within the last few weeks, there have been headlines after the High Court granted an injunction to prevent Tesco from dismissing and re-engaging a number of their employees. At a glance, readers of newspaper reports might be forgiven for thinking that the courts have done what Parliament did not and rendered hiring and firing to be impermissible. But that is not so – the facts of the Tesco case were highly unusual.
In 2010, Tesco wanted a number of employees to relocate to new distribution centres rather than take redundancy packages, so they agreed to provide pay incentives – and it took the very onerous step of guaranteeing that those incentives would stay in place for as long as the employees remained in those particular posts, no matter for how long that was.
Many years after the event, with few of the relevant employees still in those positions and with the need to incentivise them to remain long gone, Tesco offered them 18 months’ worth of incentive payments as a lump sum to buy out the on-going benefit. When the employees refused this offer, Tesco purported to give notice to terminate their current employment contracts and to offer new ones that did not include the incentive payments. In that case, firing and rehiring was directly contrary to the specific bargain that Tesco had struck, and the court prevented them from doing that – but such circumstances will rarely apply to interfere with a dismissal and re-engagement strategy.
Despite the Tesco case, and indeed what might be described as the attempted demonization of the practice – even Boris Johnson described it as an “unacceptable” means to negotiate – the reality is that the approach is often the only route open to an employer to resolve a significant impasse that is threatening the future of its business; and it is a legitimate measure in those situations.
A check against employers implementing the practice is that it will be unfair to dismiss an employee for the purpose of forcing a change in employment terms unless the business need is reasonably considered to outweigh the harm done to the individual employee. It is therefore not something that can be done lightly to simply make an already profitable enterprise more profitable. An employee with the necessary two years’ service to qualify for unfair dismissal protection can bring a claim whether they accept re-engagement or not.
Now of course, many on the employee side of the fence will argue that the principal protection for an employee against the misuse of fire and rehire by unscrupulous employers is only available to those with over two years’ service, and employees without that protective length of service are over a barrel when it comes to deciding whether to accept rehire on less favourable terms. That is certainly true, but that argument is really about whether employees should have a minimum length of service before they acquire employment protection - and that is a wider matter of principle.
Another consideration for employers is that where proposals for fire and rehire will affect 20 or more employees at one establish within a 90-day period, there is an obligation to consult with any recognised trade union, or otherwise appropriate employee representatives, and not to effect any dismissals for at least 30 days – or 45 days where 100 or more employees are affected. A failure to apply those rules correctly can result in protective awards of up to 90 days’ pay for each affected employee.
When changes to employment contracts are a genuine, provable necessity for an employer and agreement with employees cannot be reached, the application of process is crucial to implementing dismissal and re-engagement in a fair and lawful manner with the minimum adverse impact on employee and public relations. When appropriate consultation with employees and, where relevant, their unions or other representatives, has not produced agreement, a correct termination process with notice should be applied, an opportunity to appeal should be offered (at least to those with employment protection), and care should be taken to ensure that the employees’ continuity of service is not broken.
For advice relating to the variation of terms and conditions of employment, contact me at Lanyon Bowdler.