Guest contributor: Lee Jefcott, Partner at Brabners (Written April 2022)

“Fire and rehire” as a way of forcing contractual changes to employee’s terms has always been a controversial practice.  How has this changed following the recent backlash against the mass sacking of P&O workers?

What is “Fire and rehire”?

Fire and rehire is the practice of dismissing employees and offering them employment on new contracts.  It is often used by employers where there is a need to make contractual changes, for example, to change workplace location or fundamental terms relating to pay or benefits, where negotiations with employees or their trade union have been unsuccessful.   Employees’ “old contracts” are brought to an end by terminating them, and the employees are offered employment on the new contract to start immediately after the old contract comes to an end.

It provides a more certain way of getting employees onto new contracts.   The other approach often used is to just introduce the new terms and hope that employees will continue to work and therefore “impliedly” accept the new terms. This approach is uncertain as employees can carry on working but reserve their rights under their contract, which of course is continuing.   Employees cannot reserve their rights in a fire and rehire situation as the old contract has ended: if they carry on working it must be taken to be under the new contract.

However, fire and rehire (or “dismissal and re-engagement” as it is less controversially known) is a risky strategy for a number of reasons.  Firstly, it involves dismissals,  meaning employees who are eligible can potentially claim unfair dismissal.  Such dismissals are not automatically unfair under employment legislation, but if claims are brought employers often face an uphill battle in convincing an Employment Tribunal that they acted fairly in dismissing in these circumstances. Commonly employers will rely on the argument that there were pressing business needs for the contractual changes, and further that the changes were reasonable and that they consulted about the need for the changes.

Aside from legal liabilities, the practice of firing and rehiring has always risked adverse publicity, criticism from stakeholders, and damage to workplace morale. However, recent developments, including the most recent “P&O” scandal has thrust fire and rehire into the spotlight and heightened the need to tread very carefully.

P&O

On 17 March 2022 P&O dismissed 786 of its workers.  The dismissals were with immediate effect and there had been no consultation with trade unions and no advance notice of dismissals.  P&O said in a letter to the Business Secretary that the dismissals had been necessary as it had become clear that the business would not survive without significant changes, and that “generous” compensation packages had been offered to all staff which, at the time, 575 of them had accepted. The CEO said that no trade union would ever accept the kind of changes to contracts that were necessary and that was why there had been no information and consultation.

Controversially, the plan was to bring in other labour to replace the dismissed employees at less than the statutory minimum wage.

It is clear that although a compensation package was offered which many of the employees accepted, the whole episode has caused lasting damage to P&O’s reputation. No good employer would ever wish to be in this situation.

Although the Government has previously been reluctant to introduce legislation to restrict “Fire and rehire”, it has now announced that a statutory code of practice will be introduced to set out clearly what must be done and to increase compensation if there are legal claims.

How should good employers now handle the need to make contractual changes?

• Is a contractual change to terms and conditions really necessary? Talk to staff to see if the problem can be addressed in a different way.
• Where possible, try to agree on contractual variations with employees. Try to provide something positive as an incentive to reach an agreement.
• Ensure that there is a good business reason for making the changes.
• Set out proposals to employees clearly (provide the reasons, the expected timescales, what the changes would be, and provide enough time to consider the employee’s responses). Actively encourage responses.
• Show a willingness to listen to any concerns and a willingness to modify proposals where possible to take account of them.
• Inform and consult with employee representatives or recognised trade unions.
• Use fire and rehire as a last resort.

Worked Example

B Limited wants to reduce its paid overtime as it is costly and not all staff can volunteer for the overtime due to family and caring commitments.  Overtime is paid at double time, and this is contractual.  Staff who work overtime are very reluctant to agree to reduce overtime payments.

By talking to its staff, it was able to introduce a flexible working policy involving core hours and flexible hours which was seen as a fairer system, and overtime was no longer needed. Wage costs were also reduced.

Conclusion

Employers should think very carefully before adopting the “Fire and rehire” approach and explore all alternatives, where contractual change is necessary.

This article contains a general overview of information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.