Putting out the fire: Is this the end of fire and rehire?

We recently published an article on the Labour Government’s key proposals including the end to ‘fire and rehire’ practices. ‘Fire and rehire’ is a tactic often used by employers when employees refuse to agree to proposed changes to their terms and conditions. The employee is dismissed and reengaged on new, but often less favourable, employment terms. In instances where an employee does not agree to the unilateral contract change, employers may ‘fire and replace’ employees and engage other employees to effect the desired changes.

Fire and rehire practices have negative implications for employers because they harm employee relations and risk legal and reputational damage.

Statutory code on fire and rehire

A new statutory code came into force on 18 July 2024. The code provides practical guidance for employers and aims to ensure that fire and rehire is used only as a ‘last resort’. Employers can expect to encounter new challenges when seeking to dismiss employees in order to comply with the current code.

The guidance states that employers should:

• Not threaten employees with dismissal to coerce them into signing new terms, if dismissal is not actually envisaged by the employer
• Provide employees with as much information as reasonably possible regarding the proposals. This may include details about who will be affected, the business reasons for the proposed changes and how this may function in practice, the anticipated timings for the changes to be implemented, details of whether any other options have been considered and the next steps
• Conduct meaningful consultation with employees and ‘for as long as reasonably possible’
• Contact ACAS for advice before discussing fire and rehires with the workforce
• Consider alternatives to fire and rehire
• Discuss the next steps and aim to agree contractual changes with employees. If the terms are not agreed and the employer seeks to make contractual changes unilaterally, fire and rehire or fire and replace should be a last resort.

If an employer unreasonably fails to comply with the code, any compensation awarded against the employer can be increased by up to 25 per cent. If an employee unreasonably fails to comply with the code, their compensation can be reduced by 25 per cent.

Key takeaways for employers

Employers should:

• Familiarise themselves with the code and the potential consequences for failing to follow the code
• Take a proactive approach – although the code does not implement an outright ban on fire and rehire practices, employers should ensure that any such practices are carried out in compliance with the code
• Consider the needs of the business by taking into account the objectives it is seeking to achieve by making the contractual changes and the potential consequences of imposing them. This includes assessing the risk of facing legal claims, particularly given Labour’s proposal to make unfair dismissal a day one right
• Consult with employees early and on an ongoing basis to ensure employees have the opportunity to raise questions. Employers should genuinely consider and assess the functionality of reasonable alternative proposals put forward by employees
• The aim is to reach an agreed outcome with employees. If contractual changes are agreed, employers should communicate these to the affected employees in writing, setting out clearly what the changes are and when they are to be implemented.

The future of fire and rehire

The Labour Government described the code as ‘inadequate’ and suggested drafting a strengthened code in future – the details of which are unknown. It is expected that Labour will provide further clarity on the code. The party’s pledge to legislate within the first 100 days in government means that the code could be significantly amended or replaced in the next few months.

Employers need to be ready to quickly adapt and implement any further guidance prescribed by the Labour Government. You can keep up to date with key employment law changes by signing up to our Work Place Law monthly newsletter here.

If you have any questions or require our assistance, please contact a member of our Employment team.