Fire and Rehire : The implications for employers

The practice of “fire and rehire” has been a longstanding method available to employers to alter terms and conditions of employee contracts. However, the COVID-19 pandemic caused the controversial practice to receive attention, as employers have sometimes used it as a means to alter employee terms due to the adverse business consequences caused by the pandemic. Now in light of certain recent events and after much speculation, the Government has decided to intervene.

This blog will explore the means by which employers can change the terms and conditions of employees’ contracts, and the timeline of events which have now led to the recently published consultation document concerning the introduction of a Statutory Code of Practice.

Changing terms and conditions of employment

Throughout the course of their employment, an employee’s terms of employment will likely change. Where changes to the contract are beneficial to the employee, such as pay increases or changes to job roles due to promotions, these will normally occur by mutual consent and are unlikely to cause issues for the employer.

However, the employer may wish to make changes to the employment contract that the employee is less likely to accept.

The pandemic caused a mass shift to home and hybrid working, which, combined with business and economic uncertainty, left many employers in the position of needing to alter contractual terms in some way.

In order to implement changes, there are 3 main options open to employers:

1. Obtain the express agreement from employees to the new terms; or
2. Introduce the changes regardless of whether the employees have agreed, leaving it to the employees to decide how to respond; or
3. Dismiss the employees under the existing employment contracts and offer re-engagement on the new terms.

Options 2 and 3 above carry risks for the employer, who will need to ensure they follow appropriate processes and procedures so as not to risk claims such as wrongful or unfair dismissal.

The CIPD reported that whilst a majority of changes to employees’ contractual terms and conditions were achieved through express agreement during the pandemic, fire and rehire was an area in which progress could be made as it can create a high risk of legal claims and detrimentally affect employer reputation.

During the pandemic the method of fire and rehire received high profile criticism, as seen with the proposals by British Airways to fire a significant amount of their staff and re-employ on less favourable contracts.

Acas report on fire and rehire

Acas investigated the use of fire and rehire by employers, with participants in the report comprising various stakeholders including employer bodies, trade unions and academics. The report, called “Dismissal and re-engagement (fire-and-rehire): a fact-finding exercise” was published on 8 June 2021.

The report discussed the challenges caused by the pandemic and the increased scrutiny on the use of fire and rehire by employers. Concerns were raised that some employers were using the pandemic “as a pretext to diminish worker’s terms and conditions and using fire and rehire as a tactic to undermine or bypass genuine workplace dialogue on change.”

The participants of the Acas report highlighted that fire and rehire could be used in a wide range of circumstances, both before and during the pandemic, such as: redundancy scenarios (with a view to reduce redundancies); to introduce flexibility in terms of working hours, shift patterns and pay entitlements; or even to break continuity of service.

Whilst some participants believed the practice of fire and rehire to be a suitable method for changing terms, others deemed it unreasonable and expressed concern about the imbalance of power that it brings to discussions when used as a negotiation tactic.

Government response

On 8 June 2021, in a House of Commons debate Mr Paul Scully MP set out the Government’s response to the report, stating that it is an “unacceptable and, frankly, immoral” negotiation tactic.
The Government advised that employers should engage in thorough consultation with employees and exhaust other alternatives before engaging in fire and rehire.

However, the Government was also cautious to avoid unintended consequences which may result if they introduced legislation to combat the use of fire and rehire, such as increased redundancies which could only increase the hardship faced by many employees during the pandemic.

Instead of proceeding with such legislation therefore, the Government asked Acas to provide further, more comprehensive guidance.

Fire and rehire bill blocked by Government

Unsurprisingly therefore, the Government recently blocked a Private Member’s Bill on 22 October 2021 which aimed to limit the use of fire and rehire in the form of the Employment and Trade Union Rights (Dismissal and Re-engagement) Bill. Not only would the Bill discourage the use of the method but it would provide additional protection to those affected by it. It seemed that the Government intended to await the further Acas guidance before deciding on how to proceed. It seemed that the Government intended to await the further Acas guidance before deciding on how to proceed.

New Acas Guidance

On 11 November 2021, Acas published their reviewed guidance.

Acas Chief Executive, Susan Clews, states that “fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations”. Employers are therefore encouraged to obtain agreement with staff before making changes where this is possible.

The guidance highlights that effective consultation with staff can  help maintain strong working relations and bolster staff morale, as employees will better understand the reasoning behind the changes. By providing them with an opportunity to discuss their thoughts on the proposals, they can also feel that they have been given an opportunity to inform business decisions.

In light of the Acas guidance, many had been wondering whether the Government would reconsider any intervention into the practice of fire and rehire. Now, in light of recent events, the Government has announced that a new Statutory Code of Practice will be published for employers to follow.

Has the Statutory Code been prompted by the events surrounding P&O Ferries?

You will no doubt have seen the controversy concerning P&O Ferries and the 800 employees it has dismissed, with no prior staff or union consultations. Legally, employers are under an obligation to collectively consult with representatives of affected employees where there is a proposal to make 20 or more employees redundant within a period of 90 days or less. There is also an obligation to notify the Secretary of State of the proposed redundancies within a prescribed timeframe. Neither of these obligations were met by P&O Ferries.

Originally, it was thought that P&O Ferries may be utilising fire and rehire in order to move staff from employee status and engage them instead as agency workers under different terms. Indeed, the Government has recently published its condemnation of the action taken by P&O Ferries, highlighting that ‘using fire and rehire as a negotiating tactic is completely unacceptable.’

However, categorising the action taken by P&O Ferries as ‘fire and rehire’ is not entirely correct. Employees were made redundant and settlement agreements were offered containing enhanced payments for those affected. As such, Labour markets Minister, Mr Paul Scully, said that “P&O Ferries’ actions were not a case of fire and rehire – just fire.”

Although this is now accepted, it seems the increased scrutiny on the practice of fire and rehire, and the option open to employers such as P&O Ferries in being able to push ahead with such a drastic reorganisation (despite the resulting backlash from employees, the public and the Government), has prompted the Government to intervene.

Government intervention –Statutory Code

On 29 March 2022, the Government announced it would be introducing a new Statutory Code of Practice to “tighten the screw on unscrupulous employers, who must comply with a new statutory code on tougher employment rules – including fire and rehire.” However it wasn’t until January 2023 that the Government launched a consultation in to the above announcement. As part of this consultation, the Government has also produced a draft Statutory Code of Practice for review.

The Code outlines the steps that employers should take once it becomes apparent that employees will not accept the proposed changes to their contracts of employment.

The Code highlights the negative consequences associated with the fire and rehire approach, such as: damaging relationships and industrial relations; reputational risks for the employer, and risk of legal claims. Given these risks, the Code does highlight that the practice of fire and rehire should be viewed as a last resort once other options have been exhausted.

In terms of the process to follow, the Code states that employers should first consult with affected employees to provide as much information as possible regarding the proposals, before deciding whether to fire and rehire. The employer should approach the consultation in good faith and be open to consider, and explore, other alternatives proposed by employees, similar to the approach required for redundancy consultations.

The Code also adds that it is important for employers to be open and honest about the fact that, if negotiations fail and an agreement as to terms cannot be reached, they will attempt to unilaterally impose changes or dismiss employees in order to push the changes through. Nonetheless, a threat of dismissal should not be used by an employer as a negotiating tactic to pressure employees into agreeing, in circumstances where the employer is not contemplating dismissal.

Provided the employer has undergone a thorough and detailed consultation process with employees and has concluded that it still needs to make those changes, then the Code confirms they may consider the method of fire and rehire as a last resort if agreement cannot be reached.

Although the draft Code outlines practical consultation steps that employers should take before firing and rehiring and confirms that this should be an option of last resort, the question will be whether this will go far enough to deter employers from firing and rehiring staff. Whilst not exactly a case of fire and rehire, P&O Ferries were aware that their actions did not comply with the law, and were no doubt aware of the negative backlash from the public, employees and the Government if they proceeded – yet they still continued.

The Government consultation closes on 18 April 2023 and they are seeking views from stakeholders and groups to keep the matter under review, in particular, whether the uplift to employee compensation of up to 25% is enough to deter employers from engaging in fire and rehire if they fail to follow the Code.

It is not yet known when the finalised Statutory Code will be published, but we will keep you updated with any developments as soon as they are announced.

If you would like to discuss the contents of this blog in further detail, or are considering altering employee terms and conditions and would like some assistance, then please contact a member of the Employment team.