“Fire and Re-hire” as a concept have become buzz words of the pandemic and the use of this tactic has been challenged by Unions and employees, most notably in some high-profile disputes reported in the press, such as BA and British Gas, both of which underwent extensive changes to employees’ terms and conditions using this process.
So what is it?
It can be a useful tool to secure changes to major terms of employment such as reducing pay, hours or holiday rapidly without successful claims against employers. Beware, however, it can only be used lawfully and, thus, successfully when very specific facts are in play.
What exactly is ‘fire and re-hire’ and how does it work?
Fire and re-hire is essentially an employer ending one employment contract on notice, and simultaneously offering the employee (or employees) a new contract containing new terms. It allows the employer to impose a change of terms and conditions on either a single employee or a whole workforce which is to the employer’s benefit, and where the employee does not consent to the contractual variation.
It comes with a significant health warning, and therefore to avoid ensuing claims, employers must be aware of, and then know how to correctly navigate, the following legal aspects:-
Notice periods and fire and re-hire
Whenever you terminate a contract, it must be on the correct legal notice both in law and in the contract. If it isn’t, you have created a breach of contract claim. The first step, therefore, will be to ensure you know the notice periods that your employees have and that correct notice is given.
Unfair Dismissal and other statutory rights
Moving on, employees benefit from various statutory protections, the most obvious of these is that of protection from being unfairly dismissed. Any employee who has two years’ service or more has protection from being dismissed without both a fair procedure having been followed and a fair reason having been set down in law (under Section 98 of the Employment Rights Act 1996 these potentially fair reasons are: conduct, capability, redundancy, illegality and some other substantial reason (SOSR).
This means that even if you give correct notice, you must also ensure you comply with your statutory obligations too.
Employers using fire and re-hire must usually rely on SOSR. This is a legal ‘catch all’ which here is covering business needs which fall short of redundancy - allowing employers to demonstrate that they acted reasonably and fairly in all the circumstances of the case. In fire and re-hire cases that means consultation: -
An exercise like this begins with the view to seeking agreement and, only if it cannot be reached, does the employer need to consider whether fire and re-hire may then be validly implemented, subject to contractual requirements.
Where employers don’t follow a consultation period with correct meetings and supporting documentation, then the dismissal is more likely to be unfair and more likely to attract higher awards of compensation.
Mitigation
Which brings us to the final stage of Fire and Re-hire and why it can be so useful for imposing changes – the legal concept of mitigation. This means that employees who bring claims must take steps to seek a new job as soon as possible. If they are shown to have turned down a job which was very similar to their own without good reason, then they may find they cannot claim compensation against their former employers even if they have a successful claim. This is often key to Fire and Re-Hire – the Re-hire is the simultaneous offering of their old job on the new terms. This allows the employer to argue that the employee is unreasonable if they refuse it. This will depend on the changes the employer is proposing, but often the practical result is that if the employee chooses not to accept the amended terms, their losses would be very minimal if they were able to claim unfair dismissal.
Large scale fire and re-hires
The cases which have hit the headlines involve large companies dismissing their entire workforce and offering to re-hire them on similar, but less favourable terms. The workforce has been in a position where workers and employees have little option but to accept and this has caused considerable anger.
It is wise to point out here that employers must remember that other legal obligations are triggered if you propose to vary 20 or more employee terms, because the definition of ‘redundancy’ in the Trade Union and Labour Relations (Consolidation) Act 1992 includes this activity and so obligations under that act are triggered.
In simple terms, that’s the law that requires you, as an employer, to:
If you breach TULCRA’s obligations, that breach triggers claims and awards of up to 90 days’ gross pay for each affected employee.
What about commercial restrictions and fire and re-hire?
Finally, there may be practical considerations which mean this might not be appropriate to the specific situation you are dealing with. Remember that if you fire and re-hire someone who is a competitive threat, they might argue that you have breached their contract with the result that their restrictions preventing them from competing with you and/or taking your customers and key staff may no longer be enforceable ….so be careful there too. Even just failing to give their proper notice in cases of fire and re-hire can amount to a breach and so do take care here.