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A Contract of Employment ensures both the employer and employee understand the expectations of the employment relationship. The terms are clear, set out in black and white. But what happens if an employer wants to change their employees’ contractual terms – can it be done?

One option open to employers is ‘termination and re-engagement’, more colloquially known as ‘fire and re-hire’. This is where an employer terminates the employees contract and offers them employment on new terms, which contain the new term.

Is Fire and Re-Hire a Fair Option?

The moral question could be debated for a long time! Legally, this option is potentially fair provided you (the employer) have done three things:

  • Firstly, you must show a fair reason/rationale for the change. 
  • Secondly, you must show a fair procedure has been followed – this would include an attempt to first seek agreement via consultation, offering the right of appeal, and warning staff that, as a last resort, ‘fire and re-hire’ might happen. 
  • Thirdly, you mitigated losses by offering re-engagement on the new terms. Essentially, it can be a possible option but should be used very much as a last resort, where there is a deadlock and all other options have been exhausted. 

Why Is Fire and Re-Hire Viewed So Negatively?

Cases hit the press from time to time which highlight the less scrupulous ways that employers can misuse the fire and re-hire option in an excessively severe way, or which tips the balance significantly in favour of employers. 

P&O Ferries faced much criticism in March 2022 due to a system which allowed them to evade UK employment law by sacking 786 employees without carrying out the legally required collective consultation or negotiation, and replacing them with a cheaper, non-unionised workforce.

This, and similar practices by employers, have attracted much criticism, prompting the Government to draft a nine point plan (including primary legislation), to tackle the issue. They published a draft Fire and Rehire Code of Conduct on 24 January 2023 which, subject to consultation, tells employers not to use threats of dismissal to pressure employees into accepting new terms.

How Can This Be Managed Better?

It is possible to lawfully fire and re-hire, but it must be thought of as a last resort.

The draft Code proposes responsibilities for employers, focusing on the importance of meaningful consultation. The guidance advises that:

  • where possible, changes (especially if numerous) should be introduced over time
  • employers should reassure employees that they will keep changes under review
  • employers should re-examine their strategy if agreement cannot be reached

Adhering to the guidance should help to reduce scope for disagreements which, in turn, should reduce industrial action, reputational damage, management time and associated legal costs, whilst at the same time improving trust and confidence, recruitment and retention, and an employer’s reputation.

The Code won’t be legally binding, but Employment Tribunals will reflect on any unreasonable failure to comply, and should it come into being, it will include a provision allowing employment tribunals to adjust compensation awards upwards by up to 25% in an employer adopts a fire and re-hire approach without prior consultation.

The consultation period on the new draft Code remains open until 18 April 2023.

Are You Considering Making Changes?

Employers will need to make contractual changes from time to time for various strategic, economic or other reasons. 

If you are contemplating changes and would like support with your approach for effective implementation, please contact Jo Bradbury in our team on 07570 372118.

Home | Contracts

With ‘fire and rehire’ becoming an increasingly used practice for employers, we reflect on the risks of this approach and why it should be a last resort.

What Is ‘Fire and Rehire’?

There are many instances when you might need to change an employee’s contract of employment and there are a variety of ways of doing it.

However, when discussions break down over a proposed change, some employers have resorted to dismissing employees, and then offering continued employment on new terms. This practice is often referred to as ‘fire and rehire’.

In light of its increased use, ACAS have published new advice on making changes to employment contracts and in particular, the risks of adopting the practice of fire and rehire. The new guidance stresses this is an extreme approach to take.

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The Risks

You need to consider the risk of tribunal claims from employees who refuse the new terms. You also need to consider the risks and consequences of losing a substantial part of your staff if they refuse the new terms.

One recent Teachers’ Pension Scheme consultation that we did carried that very real risk for the employer. Several senior experienced teachers indicated they would refuse the new contracts and instead apply to work at other local schools.

Finally, do not underestimate the potential damage to staff morale as dismissing an re-engaging employees is almost certainly going to have a chilling effect on the employer/employee relationship.

For the above reasons the fire and rehire option should be treated as an last resort and we recommend you should try to keep discussions constructive, be open to exploring alternative options to reach a compromise and stay focused on trying to reach consensus.

For support with making changes to employee contracts, please contact Sue Meehan Boyes in our team on 07384468797.