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Fire and rehire: is it even legal?

9 Apr 2021 By Francis Churchill

The controversial tactics hit the headlines during Covid thanks to big names like BA and British Gas, but there are less dramatic ways to change conditions en masse

As with myriad other dubious workplace practices, the process of terminating employees’ contracts and re-engaging them on new, often worse, terms – dubbed ‘fire and rehire’ – has been brought to widespread attention during the Covid pandemic as big-name businesses grapple to dampen the economic fallout. Gracing newspaper headlines particularly frequently during 2020 was British Airways, which faced a backlash after it announced plans to cut 12,000 jobs completely and re-employ the remaining 30,000 staff on less favourable terms following the dramatic drop in passenger numbers caused by the pandemic. The airline’s CEO, Álex Cruz, eventually stood down over the row.

British Gas also faced the threat of strike action from its workers after unions accused the firm of trying to force its 20,000 employees to accept worse employment contracts or risk losing their jobs. 

In January this year, the TUC released research suggesting as many as one in 10 workers had been told during lockdown last year to reapply for their jobs on worse terms and conditions, or face the sack. But as Alex Watson, director at law firm Fieldfisher points out, the use of fire and rehire tactics only makes the news when it’s done badly – which normally happens when businesses are most in distress. It’s perhaps no surprise, then, that the economic impact of the pandemic has brought the issue to the fore. But this might also be just the start of a wider increase in the use of such tactics as employers start to think more strategically about the future of their workforces. “Over the next three to four years we’re going to see a lot more dismiss and re-engagement-type cases,” says Watson. “Instead of just being reactive to coronavirus, with things like Brexit, new ways of working and new cost-saving elements, there are going to be changes across shifting work and changing workplaces. So there will be a lot more of these sorts of schemes.”

On the face of it, the concept of fire and rehire is simple. An employer that wants or needs to put employees on a new contract – be it to make their workforce more flexible, move employees to a different location or cut costs by reducing wages, benefits or hours – can terminate their existing contracts and re-engage them on a new one. But the process is risky – and rightly so. “A dismissal in these circumstances is still a dismissal, so it may give rise to the right to claim unfair dismissal if not handled properly,” explains Andrew Willis, head of legal at Croner.

Employers also don’t have an automatic right to fire and rehire, and need a good business reason to do so – although unlike a more straightforward redundancy, the reason doesn’t have to be because of a reduced requirement for work. Under fire and rehire, employers need to be able to show a pressing business need to justify dismissals, often referred to as a SOSR (some other significant reason) dismissal. In practice, this often boils down to a commercial decision for employers, says Willis: “How pressing is the need for change? What is the need for change? The employer may need to take drastic action to avoid redundancies. But it needs to be something pretty pressing, serious and substantive for a tribunal to be satisfied that it was reasonable in the circumstances to go down that route,” he explains.

There are also other solutions businesses should consider first. If there are unilateral variation or flexibility clauses in the existing employment contract, an employer can consider leveraging these. However, unilateral changes also carry risk. They need to be proportional, in good faith and not outside what was envisaged when the clause was drafted, says Willis. “If you’re talking about a major change in terms of conditions, one of those clauses almost certainly won’t be enough.” He adds that tribunals tend to interpret any ambiguity in contracts against whichever party is seeking to rely on it, meaning employers should not hedge any bets on benefiting from any ambiguity in their contracts.

Businesses can also attempt to unilaterally impose new contract terms, but this could be potentially worse than fire and rehire. Not only is it just as legally and reputationally risky, it also creates added uncertainty. “It relies on [the employee] doing nothing,” says Watson.That said, Watson still describes fire and rehire as the “nuclear option”, only to be used when all else has failed. Generally, businesses are advised to try and come to a negotiated voluntary agreement with as much of the workforce as possible, and reserve fire and rehire for those who, for whatever reason, are still resistant to change. “If you had 30 people who just said no, that’s the point at which you’d have to say ‘we can’t operate 30 people out of 500 on a different type of contract’.”

Employers also need to be aware that, even though it’s not the same as a traditional redundancy process, if fire and rehire puts 20 or more individuals from the same site at risk of redundancy, then the same collective consultation rules apply. And while the Acas code doesn’t apply to these cases, Willis warns that any tribunal will still have it in mind.

But this is also not without risk. For example, in 2019 supermarket chain Asda looked to modernise its contracts, ending paid breaks, making night shifts shorter because they were premium, and allowing for more flexibility with shift patterns. “They weren’t the most draconian or onerous changes, and they balanced it by giving a pay rise,” says Watson. “And they actually did a really good job in terms of the way they went about a consultation process. But they still got an absolute kicking in the press and had a real PR issue.”

Part of the reason for this is that contract negotiations are much more public than they used to be – what Watson describes as a “lack of confidentiality in a technological era”. Messaging about contract changes that would, before social media, have been restricted to 20 people in a room, now get amplified and picked up by a public becoming increasingly attuned to issues of workers’ rights.

But not everyone agrees that fire and rehire still has a place in modern employment practices. “It’s a loophole. It shouldn’t be there,” says Duncan Brown, principal associate at the Institute for Employment Studies. “If you put people on permanent paying conditions and terms, then you need to stick to those. That’s what a contract is. If you’ve signed a big contract with a supplier, you can’t suddenly say to them ‘we’re going to destroy the contract and put a new one in that pays less’. If you can’t do it to suppliers, why should you be able to do it to employees?”

Looking back at some of the major job cuts and restructures employers have gone through in the past, Brown says it’s clear the firms turning to fire and rehire are the ones that appear to have wider leadership problems. Centrica, owner of British Gas, for example, announced its second turnaround programme in five years in February, after its earnings fell by more than a third last year. And even before the pandemic, British Airways was facing pilot strikes over a long-running pay dispute and had a number of technical problems, including a glitch in 2019 that cancelled or delayed 500 flights, as well as a data breach in 2018 that resulted in a £183m fine.

In comparison, after the 2008 financial crisis, car manufacturer Jaguar Land Rover managed to negotiate similar temporary cuts, and three years later gave 6 per cent pay awards because the firm’s recovery was going so well. “You need decent leadership who have a consultation and negotiation structure in place to be able to sit down with employees and their representatives,” says Brown, who also stresses the importance of being transparent about a company’s financial situation. “That’s how Royal Mail and Jaguar Land Rover did it – they kept their employees informed. They understand if there’s a dire situation because of a pandemic or recession then, unless costs are cut, jobs are going to go.”

Summarily cutting employees’ pay or conditions by “essentially holding a gun to their heads” is also unlikely to improve morale, Brown adds. “Even if the people accept the changes because they’re forced to and they want a job, how are you ever going to get high-performance work?”

While for Brown, fire and rehire can never be justified, it is possible to justify a negotiated reduction of terms. What is needed, he says, is a strong case for change and a collective bargaining structure, noting that while Royal Mail had a difficult time with its union when it modernised its contracts, there were benefits to having a collective bargaining structure in place. “I’m sure every union member doesn’t agree with the deal, but collectively the deal has been done. That’s the advantage of trade unions,” he says.

Other considerations such as planning and messaging are key in any contract renegotiations – especially where organisations are taking a more strategic approach to the future of their workforce – and employers need to think about their rationale behind contractual changes and how different groups in the workforce might respond. “If you have to go through these processes quickly because you’re under pressure, for example the alternative is redundancies, then OK,” says Watson. “But if it’s because you’re planning for what five years looks like in your revenue modelling, then giving yourself as much lead in time as possible is crucial.” 

To get the planning and messaging right, it’s important to be transparent and approach the workforce – including unions and employee representatives – early. “That machine is quite hard to contain,” says Watson of the internal planning process, adding it can be damaging to negotiations if the other side feels things have already been decided before it comes to the table. “Talk about what your proposals are, even if you’re only saying ‘this is how we think it’s going to go, but we want to give you a heads up’, then at least you can canvass an opinion,” Watson says. “Once the genie’s out the bottle and a bad message has been put out there, it’s hard to bring back,” he adds, urging firms to be mindful of how messaging might be perceived on social media or by wider groups of staff who may not have been in meetings first hand. 

When making practical considerations around restructures and contract renegotiations, it is perhaps most important that businesses do not forget their morals. “It boils down to values,” says Danny Kalman, former global head of talent at Panasonic and now CEO of Ella Forums. “Once you’ve established your values, then any kind of reflection you have is around how to frame the decision,” he explains. While Kalman was European HR director at the Japanese tech giant, he oversaw the closure of a major plant in Wales that made televisions, when it became unable to compete on cost as the market became more competitive and rival producers set up in countries with cheaper labour. But what could have been a public relations nightmare ended up being a positive experience for many involved: “Closing that factory could have led to a lot of bad publicity,” he says. “But the reverse happened, and people were saying how wonderful Panasonic had been.”

The key to managing the closure, says Kalman, was transparency and openness with the workforce: workers need to be communicated with in a way that makes them feel respected and looked after. “There was that genuine involvement with them, treating them as equals and intelligent people who can truly understand the situation,” he says. It also helped to have HR involved early because any big decision about a firm is really about the people who work for it, and the impact it will have on them as individuals, Kalman explains. “Panasonic’s basic business philosophy was very much about looking after the staff,” he says. 

At the time – and to some extent now – the firm had a philosophy of lifetime employment and, if one location closed down, it would move employees to another Panasonic entity. “Of course, that wasn’t the case in Europe, and there were many examples of closures and redundancies. But what was key was this philosophy of ‘what can we do to support the employees?’”

Businesses are constantly faced with difficult decisions – whether it’s during a global pandemic or in more normal times, there will always be employers that have little choice but to restructure their workforce if they want to continue operating. But ultimately, they do have a choice about how they go about it. “To survive as an organisation, you’ve got to adapt to the situation,” says Kalman. “Technology is going to change, your customers are going to change, the market’s going to change, you’re going to go into international markets, you’re going to adapt to digitalisation and you’re going to adapt to the prevailing circumstances. But the one thing that should never change is your values.”

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