Firing and rehiring staff: is it right?

Written by: Adam Bernstein
Published on: 11 Jan 2022
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exit sign Image: zephyr_p / Adobe Stock

Image: © zephyr_p / Adobe Stock

The practice of “fire and rehire” – also known as dismissal and re-engagement – can be used by employers to alter the terms and conditions of employees’ contracts of employment.

It has been slated in the press by some, but how does it work – and is it right?

According to Mark Stevens, senior associate at law firm VWV, fire and rehire is generally used as a last resort where a proposed change an employer wishes to make to a contract of employment cannot be agreed with employees.

He said: “As the name suggests, the process involves the employer giving notice and dismissing an employee, and subsequently offering to rehire the employee on new varied terms.”

Mr Stevens said the practice itself is lawful, but because it involves a dismissal there is, by definition, a higher degree of risk involved.

Unions have previously advocated the outlawing of this practice. Indeed, in May 2021, Unite the Union reported it and 19 other unions, along with 140 MPs and lords, joined together to campaign against it.

And following its increased use by employers to vary terms of employment, particularly in response to the coronavirus pandemic, the practice has been gaining increased media attention and receiving more scrutiny.

ACAS report

As a result of the rising profile of fire and rehire, the Advisory, Conciliation and Arbitration Service (ACAS) was asked by the Government to gather evidence and report on its use by employers.

Its report, “Dismissal and re-engagement (fire-and-rehire): a fact-finding exercise”, took into account the opinions of various stakeholders – including employer bodies, trade unions, professional bodies and networks with advisory contact with employers, covering employment lawyers, accountants, HR and payroll services, academics, and ACAS senior advisors. It was submitted to the Government in February 2021 and the findings were published in June.

As Mr Stevens highlighted: “The report noted a divergence in views among participants as to whether employers were using the pandemic opportunistically as a justification to force through changes to employment terms or, rather, whether the increase in the use of fire and rehire seen over the past year was simply a fallout of genuine business pressures caused by the pandemic.”

He added that the report found views were equally mixed as to whether the practice should be reformed, and if so, how.

He said: “Findings ranged from feelings that fire and rehire practices are never reasonable and should be outlawed by legislation, to, on the other side, those who believed it could be useful when genuinely used as a last resort.”

It shouldn’t surprise anyone that concerns were also raised that reforms, or a blanket ban, could lead to less flexibility for employers, which could instead lead to businesses failing and redundancies.

The outcome

For the moment, at least, the Government has confirmed it does not intend to legislate to outlaw fire and rehire practices.

However, in his response to the report in the House of Commons, Paul Scully MP – Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy – said the Government’s expectation is that employers should exhaust every avenue towards reaching agreement where it is necessary to change terms and conditions.

However, Mr Stevens – noting the Government’s view – said one reason for inaction was “the risk that reform in this area of employment law could result in more businesses failing if they cannot amend terms of employment due to business necessity”.

Instead, he said: “The Government has asked ACAS to provide more detailed guidance on how and when termination and re-engagement should be used, and ‘good practice’ for employers.”

This further guidance is awaited.

But this doesn’t mean the subject is closed; the Government has said it will continue to work with ACAS on the issue – Mr Scully confirmed “nothing is off the table”.

Advice for employers

As to what this means for employers, Mr Stevens said while further ACAS guidance is still awaited, “employers are strongly encouraged to be cautious when firing and rehiring, and to only adopt this approach when necessary and only if all other attempts to agree varied terms have been exhausted”.

He said employers should also be mindful of the increased scrutiny of the practice.

His advice was clear: “When moving to terminate and re-engage, employers should ensure they have followed a fair dismissal procedure – including confirming there are sound business reasons for the change, engaging with affected employees, considering alternatives prior to deciding to dismiss, and offering a right of appeal.”

Mr Stevens also warned employers should be aware this practice may trigger collective consultation obligations where it is possible more than 20 employees may be dismissed.

Summary

Fire and rehire is perfectly lawful if the process is carried out correctly. However, employers should be alive to the risks it carries, both in terms of a tribunal case being brought against them and a judgement made in the court of public opinion.