What employers need to know about the new ‘fire and rehire’ code

Joseph Lappin explains the implications for businesses of the forthcoming Acas code on firing workers and rehiring them on new terms

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What is fire and rehire?

Dismissal and reengagement, commonly known as ‘fire and rehire’, is a practice employers adopt when making changes to terms and conditions of employment. Employees who refuse to agree to proposed new terms are dismissed and re-engaged on different, often less generous, terms.

Firing and rehiring is not unlawful, but the tactic is controversial and might expose employers to statutory (including unfair dismissal) and contractual claims. Employers may also have collective consultation obligations if large numbers of employees are involved. 

Lawfully terminating employment and reengaging on new terms when employers need to act quickly for commercial reasons is different to intimidating employees, often low paid, to pressurise them to sign up to less favourable terms. Either way, the practice can seem aggressive.

During the pandemic, some employers adopted the tactic in response to falling profits and rising employment costs. British Gas and British Airways attracted significant media attention when they proposed carrying out the practice. Both businesses said they were taking steps to preserve jobs in response to challenging economic circumstances. However, staff and the unions viewed the conduct of both organisations differently. The Unite union accused BA of “using the current health crisis to sack thousands while firing and rehiring those that survive on vastly reduced terms and conditions”. 

A poll conducted for the GMB union in May 2021 found that 76 per cent of the UK public thinks ‘fire and rehire’ tactics should be banned. In response to the public outcry at the perceived increase of fire and rehire tactics during the pandemic, the government asked Acas to investigate. Acas published its report on 8 June 2021. 

In November 2021, Acas then published non-statutory guidance on the practice, saying that firing and rehiring should only be used as a last resort. In addition to opening employers up to legal claims and industrial action, Acas advises that the practice of firing and rehiring can damage staff morale, trust, productivity and working relations.

The new Acas code

In March 2022, UK shipping company P&O Ferries sparked a widespread outcry after sacking 800 crew members. Staff were instructed to watch a pre-recorded Zoom meeting in which they were told that ferries would be primarily crewed by third-party staff in future and that current crew members’ employment was being terminated with immediate effect. 

P&O offered the 800 crew members ‘enhanced’ severance packages with the intention of ‘buying out’ the crew members’ unfair dismissal claims and their right to protective awards for failing to consult with the unions. 

The conduct of P&O attracted significant media attention. P&O has suffered reputational damage, and its brand has been weakened. Although this was not a case of ‘fire and rehire’, but ‘fire and replace with third-party staff’, on 29 March 2022, in light of the events involving P&O, the government announced that a new statutory code of practice would be published on the use of ‘fire and rehire’ practices. 

The government says the code will detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms. It will also include some practical steps employers should follow. Tribunals will need to take the code into account when dealing with unfair dismissal claims; they will be able to apply an uplift of up to 25 per cent of an employee's compensation where an employer unreasonably fails to follow it.

The new statutory code will not prohibit the practice of firing and rehiring. The Acas guidance published in November 2021 already gives employers tips on how to work with staff and unions when negotiating changes to terms of employment. We are sceptical therefore that the code will lead to significant changes in the way employers will approach firing and rehiring. Limiting reputational damage, keeping hold of valuable staff and swerving industrial action are probably greater incentives for finding agreement with staff and unions than compliance with the code. 

At the moment the government has not set a date for the introduction of the new code. Minister for small business Paul Scully recently told parliament that the relevant legislation would be introduced “when parliamentary time allows”.

Joseph Lappin is a partner and head of employment at Stewarts