Are ‘fire and rehire’ tactics ever legal?

With one in 10 workers forced to reapply for their jobs on worse terms during Covid, People Management asked employment law experts for the lowdown on this controversial practice

Employer ‘fire and rehire’ tactics have been rife throughout the pandemic. According to research by the TUC, one in 10 workers have been told to reapply for their jobs on worse terms since the first lockdown in March 2020.

The controversial practice has faced considerable opposition from workers and unions alike, with Frances O’Grady, general secretary of the TUC, saying it has “no place in modern Britain and must be outlawed”. And Ben Willmott, head of public policy at the CIPD, says forcing a change to an employment contract by dismissing someone and rehiring on different terms should be “an absolute last resort”. 

But these are difficult times for businesses. The economic disruption caused by the lockdown measures have meant many employers have had no choice but to try and renegotiate their employment contracts. So under what circumstances might ‘fire and rehire’ be necessary, and is there a way businesses can renegotiate contracts this way without damaging their reputation or relationships with their employees? People Management spoke to employment law experts to find out.

What is ‘fire and rehire’?

Typically the prospect of firing and rehiring occurs when an employer wishes to alter an employee’s terms and conditions of employment but the employee does not agree, explains Barry Stanton, partner and head of employment at Boyes Turner. Such changes could include cuts to pay and benefits, a reduction in working hours, changes to the place of work or the introduction of restrictive covenants.

Stanton says the practice is also sometimes used in redundancy situations, where the employer puts all employees at risk and makes them apply for the remaining jobs. “This can give the employer more latitude in deciding who to rehire, as opposed to following a traditional redundancy selection exercise,” he says.

Individuals who are at particular risk of the firing and rehiring approach include those with short notice periods – for example, the statutory minimum of one week – those with fewer than two years’ service and those who are workers rather than employees, says Trevor Bettany, head of employment, pensions and immigration at Charles Russell Speechlys.

When can an employer legally fire and rehire?

Under Acas guidance there are a few ways an employer can change an employment contract:

  • if there’s a flexibility clause – a term that gives employers the right to make reasonable changes to some conditions of employment;
  • if the employee agrees to the change after a period of consultation; or
  • if employee representatives – for example, a trade union – agree to the change on their behalf.

Businesses need to understand and set out their case for requiring particular contractual changes, says Stanton. “It would be normal to inform employees about the proposed change and to seek to secure consent to the proposed changes through consultation,” he says. Part of this also means considering if there are any other ways the business can make the necessary cost savings.

If an agreement over contractual changes can’t be reached, firing and rehiring is a way an employer can force a new contract on employees. But this could lead to legal action, says Stanton, who urges employers to continue discussions before taking such a “drastic step”.

“If voluntary consent cannot be obtained it may be necessary to enter into further consultation with those employees who have not consented, explaining again why the changes are necessary,” he says. Under fire and rehire, these extended consultations would be to the effect that, if employees do not agree to voluntary changes, their employment will be terminated and they will be offered a new contract on new terms.

What are the potential legal repercussions?

Danielle Parsons, employment solicitor at Slater and Gordon, warns that terminating an employee’s contract and offering them a new one on reduced pay or benefits could leave employers open to tribunal claims.

“Most employees in this situation, particularly in the current economic climate, are likely to be forced to accept [the new contract], whatever the terms, to avoid unemployment. If this is the case, then the employee may have a claim for unfair dismissal if they have more than two years of service,” she says.

Instead, she advises employers to look at other ways to cut costs. Businesses should look at recruitment freezes, voluntary redundancies, offering sabbaticals or making use of the furlough scheme, among other measures.

Stanton strongly advises that “if it is necessary to give notice to terminate, proper contractual notice should be given”. Failure to do so can leave an employer in legal hot water by giving rise to tribunal claims for unfair dismissal.

Dialogue and consultation is “invariably the best approach”, says Bettany, as employees will then recognise that many employers have to take drastic steps to enable businesses to survive, however unpalatable they may be. “An employer that explains what it is having to do and why, and that there are no reasonable alternatives, may be able to persuade an employee to agree to the variation by consent – and avoid the risks of forcing through a dismissal,” he explains.

“If the employer does have to dismiss, it may have to show a tribunal that it has consulted properly before serving notice to dismiss and offering to rehire.”

Is it possible to fire and rehire without reputational damage?

Fire and rehire tactics “can really damage the reputation of a business [because] now more than ever consumers are more likely to turn away from businesses that put profit before people”, says Parsons. But this “doesn’t mean all employers that fire and rehire are bad employers or acting unlawfully”.

“In some cases, and where negotiations have tried and failed, there may be no other alternative, particularly in light of Covid,” she says. “In cases where the employer genuinely needs to make changes and these are properly explained, the employees are more likely to accept them.”

Beyond the potential legal ramifications of firing and rehiring, Parsons says employers have a moral and ethical judgement to make as well as a legal one: “Firing and rehiring should be a last resort. This can be damaging for employee relations in the long term, particularly if the process is managed insensitively.

“Even if there is no legal imperative for an employer to keep an employee in their job, employers should consider good business practices and do all they can to retain jobs, particularly during a pandemic.”