“Fire and rehire”: what you should be considering as a business

One tactic used to reduce employment costs, “fire and rehire”, has received negative media attention following its use by big name companies to lessen the financial blow of the pandemic. This term describes the process of terminating employees’ contracts of employment and re-engaging the same employees on new, often worse, terms, such as reduced wages, benefits, hours or other less favourable terms.

Despite the negative press, the use of “fire and rehire” is a legal and valid way for businesses to make necessary changes to their structure. However, careful consideration is required to ensure that the company’s position is protected, legally and reputationally.

Factors for businesses to consider

Risk of tribunal claims

There is no automatic right for an employer to fire and rehire employees, and doing this without proper consultation can leave employers open to tribunal claims.

A dismissal under “fire and rehire” circumstances will still be a dismissal for the purposes of employment law, and if an employee has more than two years’ service they may be able to pursue a claim for unfair dismissal.

Businesses will need to ensure that employees are fairly dismissed from their original contracts, with fair reason and following a fair procedure. They must be dismissed on the appropriate notice and offered the opportunity to accept or reject the new terms. If accepted, their continuity of employment continues uninterrupted. If rejected the employee’s contract ends.

Considering alternative options

The use of “fire and rehire” tactics can significantly damage the reputation of a business, as illustrated by the recent negative media coverage of British Gas using this method. The process requires careful consideration and should be operated as a last resort, with the focus on seeking employee agreement to the changes through a consultation process. Where proposed changes are communicated clearly, employees are more likely to accept them, negating the need for dismissal and reengagement.

The first step for an employer will be to review the existing employment contract and identify the terms they are looking to change. There will need to be a sound business reason and clear rationale for the changes.

The next step will then be consulting with the affected employees to try to reach agreement. If the proposal will affect more than 20 employees, collective consultation via either trade union, or employee, representatives will be required. Many employers try to reach agreement with the majority of employees before considering dismissal as an option as this can limit the number of employees who might end up at risk of being dismissed. If the number is below 20 people it avoids the need for a collective consultation process.

The proposed changes and rationale will need to be explained, and employees should be asked for their views and willingness to agree the changes. Although preferable, obtaining employee agreement to contractual changes is not always possible. Only if agreement is not possible with some of the employees, and the employer has to implement the changes, should the option of dismissal on notice and the offer of immediate re-engagement on the new terms be utilised.

Our employment team has worked with business of varying sizes prior to and throughout the Covid-19 pandemic to help them negotiate and enact changes to their employment contracts.