For the latest developments, details and anticipated timings of key employment law reforms, see our Reform Hub.
What’s the current position on fire and rehire/fire and replace?
Currently, there is no outright ban on the practice of fire and rehire or fire and replace. However, using this method to change terms and conditions of employment is considered a last resort and is usually a higher risk strategy.
What is changing?
The new rules set out in the Employment Rights Bill, currently making its way through Parliament, mean a dismissal will be automatically unfair if the reason, or principal reason, for the dismissal is:
- that the employer sought to vary the employee’s contract of employment and the employee did not agree to the variation; or
- to enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same duties, or substantially the same duties, as the employee carried out before being dismissed.
There is a (very) limited exception to the above rule if an employer can demonstrate that the reason for the variation was to “eliminate, prevent or significantly reduce” financial difficulties which were likely to affect the employer’s ability to carry on the business as a going concern and in all the circumstances the employer could not reasonably have avoided the need to make the variation.
General consensus is that this exception sets such a high hurdle that, in practice, we do not expect many companies will be comfortable relying on this exception. Even if the exception applies, the dismissal must still also be fair in all the circumstances. The Employment Rights Bill also doubles the maximum ‘protective award’ from 90 to 180 days gross pay per employee. This protective award applies in cases where ‘fire and rehire’ or ‘fire and replace’ would trigger collective redundancy consultation obligations. Currently, this is where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less – although this trigger for collective consultation too will be changing under the Employment Rights Bill (see our article here).
It looks as if the Code of Practice on dismissal and reengagement will also stay (failure to comply with may mean a 25% uplift in awards).
What impacts will this have?
Given the penalty increases for falling foul of these consultation rules, the automatic unfair dismissal risks and the reputational risks, fire and rehire exercises will likely become an absolute last resort.
Additionally there may be unintended consequences. One such unintended consequence is that the provisions could potentially impact employers who may not consider themselves engaging in ‘traditional’ fire and rehire exercises but consider there are good business reasons for wanting to change terms and conditions of employment. For example, adjusting an employee’s working hours to accommodate a new client contract or imposing a return to office mandate for a home workers. We also note that these new restrictions apply to all contractual changes, even positive ones.
Employers may try to manage these new rules by including ‘flexibility’ clauses into the contract, such as mobility clauses dealing with where the employee works and clauses in relation to duties or hours of work. These clauses usually reserve discretion to the employer to make changes without agreement from the employee (as agreement is essentially already baked into the contract). However, such clauses would need to be drafted carefully and clearly and not exercised in such a way as to breach mutual trust and confidence.
Additionally, we note that the new rules do not have a minimum threshold, applying to single employees. For example, a poor performer could claim they were ‘fired and replaced’ if their replacement happens to be on varied terms and conditions. Employers will need to be consistent and clear when recording their reason for dismissing an employee to ensure they are not inadvertently caught by the restrictions around ‘fire and replace’.
Implementation is currently anticipated no earlier than 2026, though firm details on timing have not yet been provided. Therefore, there is time to consider how these changes may impact your business practices and start to plan accordingly.
For further information on the changes to fire and rehire, see here.
