Fire and rehire involves terminating an employee’s existing employment contract and offering to rehire them on new terms, usually as a last resort, where an employer cannot make the proposed changes using existing powers in the employee’s contract and the employee has not given their agreement to the changes.
Fire and rehire has been used in recent years by companies due to the financial impact of the Covid-19 pandemic. The most recent and controversial example was by P&O Ferries when it fired employees and rehired some of them on cheaper agency terms.
Why do employers fire and rehire?
It is easy to see why employers resort to such tactics: to save costs, provide greater flexibility where current contracts do not provide for it or to expand a service offering.
Whatever the business reason, it must be substantial, and the employer must have acted reasonably in all the circumstances when deciding to rely on that reason to fire the workforce, whether it be to change working hours, shift patterns or to make employees work at the weekend due to customer demands. However, the business reason does not need to be fair.
The employer’s ability to fire and rehire on changed terms has been viewed by some as a strong-armed tactic that ultimately undermines consultation processes and workplace dialogue.
However, attempts through a Private Members Bill to prohibit the practice failed recently. The Bill had sought to make all dismissals automatically unfair where the intention was to rehire on lesser terms.
However, whilst P&O received such bad press for its behaviour, the use of fire and rehire is not a new phenomenon. Over many years it has been a tactic that many employers have used, not necessarily to avoid dialogue or to threaten workforces, but as part of a suite of tools to help businesses make rapid change to business operating models, minimise the need to make redundancies, harmonise terms and provide for future flexibility driven by new technology.
There will always be two sides to the debate and a fine balance between protecting employees and allowing businesses to thrive and adapt. The risk of course is that by changing the law on unfair dismissal to make it harder for businesses to prove their case for fire and rehire results in increased redundancies or outright failure of a business and loss of more jobs.
Statutory Code of Practice on fire and rehire
The Government has tried to keep the balance with its current proposal which involves asking Acas to prepare a Statutory Code of Practice on fire and rehire. The Code will have to be taken into account in tribunal proceedings when considering the question of fairness.
It would likely include a 25% penalty uplift for non-compliance and removal of the statutory cap on compensation for unfair dismissal. It would set out the steps for and expected consultation requirements with employees before any dismissals could take effect.
P&O would fall foul of such a Code now, where there was no intention to consult from the outset, and more rigorous scrutiny of the reason for dismissing a workforce, to determine whether the commercial or operational reasons are genuinely 'substantial' and the dismissals necessary in all the circumstances.
Perhaps baby steps, but a clear indicator of the importance of communication with workforces and the need to consider all options before resorting to the fire and rehire option, whilst maintaining an employer’s ultimate right to make changes for the benefit and survival of the business.