What is fire and rehire?
Fire and rehire is a strategy employers use when they wish to change the terms and conditions of their employees’ existing employment contracts. Reasons for this may vary, but it is typically because of an employer’s need to cut costs. Employers dismiss affected employees and offer to hire them back under new employment contracts that often contain less favourable term.
Fire and rehire has long been practiced by businesses and has been considered controversial for just as long. It is more common than one might think with small businesses as well as large corporations using it as a method to cut costs (more famously, Tesco lost a Supreme Court battle in September of last year over their firing and rehiring in 2021).
Whilst there is little information on the exact number of businesses that use this strategy, a survey of workers by the Trades Union Congress undertaken in January 2021 found that 9% of workers had been told to reapply for the same jobs under worse terms since March 2020. This shows fire and rehire has become more prevalent during COVID due to the obvious financial strains all businesses faced.
Under what circumstances can fire and rehire happen?
Whilst fire and rehire has become more common, employees are challenging this. As Employment Tribunals increasingly decide in employees’ favour in unfair dismissal cases involving fire and rehire, this practice is becoming a less viable option for employers.
Code of Practice
The Conservative government introduced a Code of Practice which came into effect in July 2024. Its purpose is to encourage employers to act reasonably and responsibly in negotiations over changes to terms of employment contracts. The employer should engage in a good faith consultation on the proposed amendments to terms for as long as is reasonably possible to obtain a mutually agreeable conclusion. Whilst the code is not legally binding, its provisions can be considered by courts and Employment Tribunals. An employer’s failure to comply with such provisions could result in an employee being awarded a 25% uplift to their Tribunal claim.
It should be noted that Labour have criticised the code for being inadequate and, as the governing party, have proposed to introduce more stringent legislation.
Employment Rights Bill
The Employment Rights Bill was introduced to Parliament by the Labour government in October 2024. The Bill does not aim to abolish fire and rehire but does intend to restrict it as much as possible. The Bill’s main proposals are:
· To make it automatically unfair for an employer to dismiss an employee if they refuse to agree to a variation of their employment contract;
· To make it unlawful to rehire the same employee on less favourable terms but with the substantially same duties; and
· That businesses who fire and rehire must be facing serious financial difficultly.
Frustratingly, ‘financial difficulty’ is not defined in the Bill which makes it difficult for businesses to navigate how to fire and rehire in accordance with the relevant legislation. However, the Bill is due for debate in March 2025 and is likely to come in effect in 2026, when it will hopefully provide further clarity.
What should businesses consider before a fire and rehire?
Given the tension that can occur from fire and rehire, even if a business were to adhere to the guidelines, engaging in such a practice will always involve risk.There is also the potential reputational risk to consider as consumers grow more conscious about the ethics of the businesses they engage with. Therefore, businesses should only opt for this after exhausting all avenues.
Going forward, businesses may want to consider including flexible clauses in their employment contracts to get ahead of the upcoming changes. Clauses that allow employers to unilaterally change the terms of the employee’s contracts (such as their employment benefits and annual leave) will lessen the need for fire and rehire. However, employers need to take care that they do not draft employment contracts too widely at the detriment of employees.
