The Employment Rights Bill, introduced in October 2024, aims to restrict the practices of ‘fire and rehire’ and ‘fire and replace’. These practices involve changing employment terms by dismissing and re-engaging employees, in some circumstances with the aim of forcing their hand to accept the changes. The Employment Rights Bill changes will affect businesses large and small, across all industries.
We reported previously on the introduction of a code of practice which should be followed in ‘dismissal and re-engagement’ scenarios otherwise known as “fire and rehire” (see link to our previous article ). The code itself doesn’t include any new legal obligations, but Employment Tribunals are required to take it into account.
We further reported on the recent amendment to this code, which came into effect in 20 January 2025. The original code of practice was extended further with Tribunals being able to increase/decrease compensation by up to 25% for a successful protective award claim where there has been an unreasonable failure to comply with the code when dismissing and re-engaging staff (see link to the article discussing that change ).
Changes under the Employment Rights Bill
The government wants to end “fire and rehire” as a viable approach for businesses, save for in certain critical restructuring situations. They intend for it to still be possible where there is no alternative, but that otherwise dismissals under this tactic will be automatically unfair. The government hopes that these changes will protect employees and also reward “good employers” who know that they will not be undercut by competitors who use such tactics.
The Bill’s primary effect is to make it automatically unfair to dismiss an employee for refusing to agree to a variation of their contract of employment, or because an employer intended to employ another person on varied terms to carry out substantially the same role.
The Bill would include an exception which permits this tactic if the employer can show that:
- The reason for the variation was that the employer was in such severe financial difficulties that its ability to continue as a going concern or otherwise carry on its business was under threat (i.e. that the business was likely to become insolvent if it could not dismiss and re-engage on new terms); and
- The employer could not reasonably have avoided making this variation.
However, the specific application of this exemption is not clear. As currently drafted, the exception is limited only to severe financial difficulties. There are many circumstances where a business may need to make significant structural adaptions to its workforce, such as where winning or losing a commercial contract is on the line. To demonstrate how pervasive this change will be, picture an employer needing to make a change to its workplace. This may constitute a material change to the employee’s contract of employment (depending on the drafting), and which, if refused and if the reason for dismissal, would be caught under this proposed legislation.
As it stands, these restrictions that the Bill intends to introduce will likely result in much greater levels of preparation needed for employers to carry out these structural changes to their workforces. They may otherwise be forced, where there is not an existential financial threat, to make redundancies which could have been avoided had changes to terms and conditions continued to be a viable approach.
The Bill’s primary effect is to make it automatically unfair to dismiss an employee for refusing to agree to a variation of their contract of employment
What employers can do to prepare?
Mass fire-and-rehire exercises carry considerable reputational and legal risk, as starkly illustrated by the high-profile case of P&O Ferries in March 2022. Employers contemplating similar large-scale restructurings should carefully assess the potential implications of proceeding under the current legal framework. In particular, advancing any proposed changes prior to the implementation of the forthcoming Bill may, in certain circumstances (and if carried out well), reduce both the financial exposure and broader strategic risks to the business. Businesses may also consider starting to include contractual clauses in employment contracts which allow flexibility for the employer to change certain employment contract terms, by permitting the employer to unilaterally change certain terms without the employee’s consent and preventing the need for the fire-and-rehire situation to arise.
Such clauses are currently valid, but employers should be careful in both their implementation and their use. They must be drafted very precisely and narrowly and any unilateral changes will be subject to the implied term of trust and confidence and limited by some existing case law. The government may also introduce further legislation which limits the use of these clauses, though none is currently proposed.
If you or your business would like specialist advice on this topic, please do not hesitate to contact our employment lawyers.
