Fire and rehire – why employers should tread carefully

Harrison Drury’s employment law team examines the issues and potential risks and pitfalls of firing and rehiring staff members as a way of keeping a business viable.

With the economic disruption caused by lockdown measures and the furlough scheme being scheduled to come to an end in September 2021, many businesses are investigating ways to keep themselves profitable and their employees in work.

One of the methods some employers may look to use is the termination of a contract of employment, followed by the re-engagement of an employee, on alternative and less favourable terms for the employee.

Individuals who are at particular risk of this approach include those with short notice periods, those with fewer than two years’ service and those who are workers rather than employees.

According to a recent Trade Union Congress report, since March 2020, nearly one in 10 workers have been told to reapply for their jobs on worse terms and conditions, or to face being fired. This trend has been dubbed ‘fire and rehire’ and the TUC has called for it to be outlawed.

Understandably, this is a controversial practice and employers need to be aware of the potential moral, ethical, and reputational considerations, not just the legal ones.

Factors for an employer to consider

It is not strictly unlawful to ‘fire and rehire’.

It is a generally accepted concept that businesses must be able to adapt and to amend terms of employment to accommodate changing business needs. Without the ability to make such changes, a business may be forced to make redundancies or even enter into liquidation. Clearly, the consequences of such alternatives are far more damaging for an employee than being hired on alternative contractual terms would be.

However, in practice, ‘fire and rehire’ may give rise to disgruntled employees and consequent claims in the employment tribunal, as well as causing damage to the employer’s reputation and relationship with its employees.

Such a claim could be for unfair dismissal, unless the employer could establish a potentially fair reason for dismissal and show that it acted reasonably in dismissing the employee for failure to agree a change. Importantly, the employer would have to ensure that it followed a fair dismissal process. In addition, an employee could claim for wrongful dismissal if the wrong amount of notice was not provided.

Alternatives for the employer – Varying terms of employment

If an employer wants to change the terms on which an employee is employed, it must know how to make the change legally binding while minimising any possible risks.

Whilst it is true that an employee’s terms of employment will naturally change in a number of ways during the course of their employment, for example, by annual pay increases and promotions, these types of changes are favourable to the employee and will normally happen by mutual consent. This is therefore unlikely to cause any legal or practical problems for employers.

Seeking the express agreement of an employee to a contractual change that is unfavourable to the employee, would reduce the risk of a tribunal claim and would be less damaging to workplace morale than ‘fire and rehire’ would. It is worth noting that, for the contractual change to be binding, the employee must receive some form of benefit in return for agreeing to the change.

Alternatively, the contract will already allow for the proposed change, in which case any risk is greatly reduced. To determine whether this is the case, the employer will need to identify the existing terms of the contract. This will include any terms which have been implied into the contract by custom and practice.

If the contract does not allow for a change of terms or the change cannot be agreed with the employee, employers are advised to consider whether the changes are a necessity and whether they will make significant savings for the business in any case.

If the changes are considered essential, then employers are urged to consider options which pose the least probability of challenge from an employee.

Practical Tips

If you decide to proceed with ‘fire and rehire’, it is imperative that you ensure that you follow a fair procedure in doing so, that you give the employee enough notice and that you offer the employee a right of appeal against their dismissal.

We would always recommend that you seek legal advice as to varying terms, prior to commencing any process.

For more information and advice around this subject, please contact our employment team on 01772 258321.