Fire and rehire is the process of terminating an existing employment contract, usually on notice, and then offering to rehire the employee on amended terms, which are less favourable to the employee. It is also known as dismissal and re-engagement.
The Government asked Acas to conduct an investigation to learn more about the use of fire and rehire practices. Acas found the following to be the main reasons why this strategy is used:
- To avoid redundancies. For example changing terms to reduce costs and to retain the skill set of employees if they choose to stay;
- Changing terms and conditions. Often where negotiations to do so have broken down;
- Harmonising terms and conditions where an employer wishes to rationalise disparities amongst different groups of staff;
- Introducing flexibility into contracts (through flexibility clauses); and
- Negotiation strategy. Many of those interviewed in the investigation thought this to be an aggressive form of negotiation.
When to use fire and rehire as a strategy was highly disputed. Some interviewees felt that it was never justifiable, some felt it should be used as a last resort whilst others felt that it should be used when it suits the employer’s needs and when the rationale for doing so is recognised.
During the pandemic, 18% of 18-24 year olds reported that their employer had tried to re-hire them on inferior terms during the pandemic. Working class people were nearly twice as likely, than those from higher socio-economic groups to have been told to re-apply for jobs under worse terms and conditions. BME workers were twice as likely to be presented with fire and rehire than white workers.
In response to the report, the Government asked Acas to produce guidance to help employers to explore all other options first before considering fire and rehire to change employee contracts.
The guidance was published on 11 November 2021. It states that “fire and rehire is an extreme step that can seriously damage working relations… employers should thoroughly explore all other options first and make every effort to reach agreement with staff on any contract change”.
The risks include:
- Damage to trust and working relations in an organisation;
- Increased stress for employees (especially if they have been given less pay, different hours etc.) which may in turn lead to absence or sickness leave from work;
- Losing valued people in the organisation if they do not wish to accept the new terms;
- Reputational damage;
- Potential for discrimination claims (if the amendments only affect one particular group) and unfair dismissal (if correct dismissal procedure was not followed).
Acas advice that fire and rehire should be used as a last resort. Acas note that there are other ways to amend / implement terms of a contract which should always be attempted first.
Acas advise the following:
- Any changes cannot be made without agreement first (note that employees actions may count as agreeing e.g. if an employee continues to work under the amended terms and conditions – if the change was to amend hours from 7am to 3pm and employees start to come into the office at 7am rather than the previous 9am);
- Look at other potential routes, for example, if the company needs to reduce business costs the company should look at other ways and other places where savings can be made;
- Asking employees for their suggestions; they may come up with alternative ideas that the company had not thought of;
- Offering enhanced benefits for staff (e.g. change of terms to work some night shifts; giving employees an enhanced hourly rate during their night shifts);
- There should be a full consultation with all affected staff and their representatives in a genuine and meaningful way with a view to explain the situation and to listen to the employees responses; and
- Where staff are not initially accepting of the changes, there should be continued constructive discussions. For example, asking for feedback, answering questions, responding to any concerns and reassuring staff, listening to reasons why the changes may be rejected and explore alternative options to reach a compromise that assist the company and the individual. This may mean enhanced benefits, flexible working or something else.
Acas does appreciate that there may be times where it is business critical to use fire and rehire however, if done, the process should be handled correctly, for the protection of the business and for the benefit of the employee.
In our experience employers do not carry out fire and rehire lightly. It is usually reserved for severe financial distress situations or to update out-dated and inefficient working practices. We would always advise employers to carry out consultation before imposing any changes to terms. But if agreement cannot be reached, there may come a point where further consultation is futile and the employer considers that the only reasonably option available to it is fire and rehire.