The practice of 'fire and rehire', also known as dismissal and re-engagement, has garnered significant attention in recent years, especially as businesses navigate economic uncertainties. This controversial employment practice involves an employer terminating an employee's contract and then rehiring them under new, often less favourable, terms. It has raised concerns from trade unions, legal bodies, and government officials, leading to calls for clearer regulations. Here, we explore the current legal framework surrounding fire and rehire in the UK and the protections available to employees.

What is Fire and Rehire?

Fire and rehire occurs when an employer seeks to change the terms and conditions of an employee’s contract. If the employee does not agree to the proposed changes, the employer may terminate the existing contract and offer a new one with different terms. Common changes include reduced wages, altered working hours, or amended job roles. The practice is generally used as a last resort when an employer cannot secure agreement from employees through negotiation.

The Legal Framework

In the UK, employment law allows employers to alter contract terms, but they must follow specific procedures to ensure fairness. Simply dismissing an employee and rehiring them under new terms without following the proper legal processes could expose employers to claims of unfair dismissal or breach of contract. The key legal elements associated with fire and rehire are:

1. Contractual Consent: Employers must attempt to gain an employee’s consent to the proposed changes. This can involve consultation and negotiation with individual employees or collective bargaining with trade unions where applicable. If consent is achieved, the new terms can be implemented without termination.
2. Unfair Dismissal Protections: If the employee does not agree to the new terms and the employer dismisses them, they may have grounds to claim unfair dismissal. Employees who have worked continuously for an employer for two years or more are protected under unfair dismissal law. Employers must demonstrate a fair reason for the dismissal and show that they followed a reasonable process in attempting to make the changes.
3. Redundancy Considerations: Employers must be cautious when using fire and rehire as an alternative to redundancy. If the change in terms effectively reduces the employee’s role or responsibilities, the situation could be construed as a redundancy, triggering rights such as redundancy pay and consultation.
4. The Importance of Consultation: Employers are required to consult with employees before making any significant changes to their contracts. This is particularly important if the changes affect a large number of employees, as it may trigger collective consultation obligations. A failure to consult appropriately could result in penalties, including protective awards for affected employees.

Government and Legal Responses

The fire and rehire practice has faced increasing scrutiny, particularly during the COVID-19 pandemic, when several high-profile companies used it as a cost-cutting measure. In response to these concerns, the UK government announced steps to regulate the practice and ensure better protections for employees.

In April 2024, the UK introduced the first statutory code of practice for fire and rehire. The code sets out specific guidance for employers on how to use this practice lawfully and fairly. While it does not outlaw fire and rehire, it emphasises that the practice should be used only as a last resort after all other avenues, including negotiation and consultation, have been exhausted.

The code also strengthens employees' positions in tribunals by giving judges the discretion to increase compensation awards by up to 25% if an employer is found to have acted unreasonably in failing to follow the code.

Case Law and Precedents

Recent case law has highlighted both the legal risks and complexities associated with fire and rehire. Courts have emphasised the need for employers to act in good faith and to exhaust consultation procedures before dismissing employees. Employers that have skipped or inadequately conducted consultations have faced significant financial penalties, underscoring the importance of adhering to legal obligations.

In some cases, tribunals have ruled in favour of employees, particularly where employers have used fire and rehire as a means of bypassing the standard negotiation processes or where the new terms were seen as disproportionately unfair.

ACAS Guidelines and Advisory Role

The Advisory, Conciliation and Arbitration Service (ACAS) has also played a pivotal role in providing guidance on fire and rehire. ACAS emphasises that employers should explore alternatives to dismissal and ensure that changes to employment contracts are made collaboratively, wherever possible.

ACAS further advises employees on their rights if faced with a dismissal and rehire situation. If an employer proposes to fire and rehire an employee, ACAS encourages the employee to first seek clarification and attempt to resolve the matter through dialogue. If unsuccessful, employees may file a claim for unfair dismissal.

In conclusion

Fire and rehire remains a legal but highly contentious practice in the UK. The recent introduction of a statutory code of practice has provided clearer guidance to employers on how to lawfully implement contract changes while offering stronger protections to employees. However, employers must be cautious in using this practice, ensuring that they follow proper consultation processes, explore alternatives, and use dismissal only as a last resort.

For employees, understanding their rights under unfair dismissal laws and the new statutory code is crucial, especially if faced with detrimental changes to their contracts. With the spotlight on fire and rehire continuing to intensify, both employers and employees need to be fully informed of their legal rights and obligations in navigating this complex area of employment law.