Documents to download

 Background

The practice of fire and rehire (also called dismissal and re-engagement) occurs when an employer dismisses an employee and offers to rehire them on new terms. The new terms are usually more favourable toward the employer. The tactic is typically used when it has not been possible for the employer to vary the terms of the contract by agreement.

The practice is not unlawful in and of itself. However, as it does involves dismissal, the employer might face claims for unfair dismissal. If there are sufficient numbers of employees involved, the employer will also have a legal duty to undertake collective redundancy consultations first.

1.1   Varying the contract of employment

The relationship between an employer and an employee is principally governed by the contract of employment.

There are a number of different ways in which an employer can seek to vary the terms and conditions of the employment contract. Some contracts will contain a clause that allows an employer to unilaterally vary certain terms. If there is no such clause, an employer could vary the contract with the consent of the employee or the consent of a union for collective agreements.

The Advisory, Conciliation and Arbitration Service (Acas) guidance, Changing an employment contract, provides a detailed overview of the different ways in which a contract of employment can be changed.

1.2   Dismissal and re-engagement

If an employer is unable to reach an agreement with an employee on changes to the contract, they may decide to dismiss the employee by notice and then offer to re-employ them on new terms.

As noted above, this practice is not unlawful in and of itself. However, there are various statutory protections that may be relevant. The Acas guidance summarises:

  • If you’re an employer considering this option, first think about:
    • whether you’ve done everything you can to reach agreement
    • whether the changes are absolutely necessary
    • the risk to employee engagement and morale
    • the risk of legal action
  • If deciding to dismiss and rehire, the employer should:
    • follow a fair dismissal procedure
    • give the employee enough notice (statutory notice or what’s in the contract – whichever is longest)
    • offer the employee a right of appeal against their dismissal
  • Changes should not take place until the employee has been fairly dismissed and then rehired under the new contract.

There are three main legal protections that are relevant in such cases:

  • Protection against wrongful dismissal;
  • Protection against unfair dismissal; and
  • Duty to consult in cases of collective redundancy.

A brief summary of these three protections is set out below.

Wrongful dismissal

Wrongful dismissal occurs where an employer dismisses an employee in breach of contract. This could occur, for example, where an employer does not give an employee the sufficient amount of notice set out in their employment contract.

Wrongful dismissal claims are brought in the civil courts. The court will not be concerned with the fairness of the dismissal. Rather, it will look at whether the employer complied with its contractual obligations.

Unfair dismissal

Employees who have worked for their employer for two or more years are protected from unfair dismissal. The protection is set out in the Employment Rights Act 1996.

A dismissal will be unfair unless it is for a potentially fair reason listed in the legislation and the employer’s decision to dismiss was reasonable in the circumstances.

One of the potentially fair reasons for dismissal is “some other substantial reason” (SOSR). In Hollister v National Farmers Union the Court of Appeal held that if an employer had ‘good business reasons’ for reorganising a business and dismissed an employee who would not accept new terms, they could rely on SOSR as the reason for dismissal.[1]

Whether a dismissal is reasonable in the circumstances will vary from case to case. An Employment Tribunal will consider a range different factors. The reasonableness of the new terms that are offered by the employer will be relevant but not decisive. Other factors, such as the number of employees who did accept the new terms might also need to be considered.[2]

In Catamaran Cruisers Ltd v Williams, the Employment Appeal Tribunal held that when deciding whether a dismissal was reasonable, tribunals must take a balanced approach. It should not focus solely on whether the new contract disadvantages the employee but must also consider the benefits to the employer in reorganising. It does not need to be shown that reorganisation is vital for the survival of the business.[3] However, there is case law which suggests that an employer will need to show that it was under some pressure to put its employees on new contracts. It may not be not enough for the employer to show that reorganisation is just convenient.[4]

Collective redundancy consultation

Under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), an employer who is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days must consult employee representatives. Consultations must begin 30 days before the first dismissal takes effect (or 45 days if the employer is proposing to dismiss more than 100 employees).[5] The definition of redundancy, which in this context gives effect to EU law, is broad and it is generally accepted that the duty to collectively consult applies in cases of dismissal and re-engagement.[6]

If an employee is dismissed during the consultation period they can apply for a ‘protective award’ (a financial penalty against the employer).

Further detail can be found in the Library Insight, Coronavirus: Protections from redundancy.

1.3   COVID-19 pandemic

The COVID-19 pandemic and the associated lockdowns have had a significant impact on the labour market. A detailed overview can be found in the Library Briefing, Coronavirus: Impact on the labour market.

During the pandemic there have been a number of high-profile disputes about the use of fire and rehire tactics. The exact number of workers affected by fire and rehire is unknown. A report published by the Trades Union Congress in January 2021 estimated that 9% of workers had been told to re-apply for jobs on worse terms since March 2020, with higher rates among young and BME workers.

In June 2020, the Transport Committee published a report criticising the use of fire and rehire tactics by British Airways.[7] On 16 September 2020, Alex Cruz, then CEO of British Airways, told the Committee that an agreement had been reached with workers.[8] Unite the Union welcomed the agreement but noted that it did not cover all workers. In December, British Airways cargo workers voted to strike over a dispute about fire and rehire. However, an agreement was reached on 27 January 2021.

The GMB Union is also involved in a dispute over fire and rehire with Centrica (British Gas). In February 2021, Chris O’Shea, CEO of Centrica, gave evidence to the Business, Energy and Industrial Strategy (BEIS) Committee, arguing that reorganisation was necessary to protect jobs:

  • We have been going for over 200 years and we have terms and conditions that have been built up over a number of years. The market has changed. Customer needs and wants have changed. We have to change as well. Companies should not have the right to do this under any circumstance at all—employment rights are important—but it is inescapable that our use of contractors and the gig economy has increased substantially over the past several years.
  • What I am trying to do is to stop that and to protect the direct-labour employed model that we have. We have the biggest unionised workforce of our kind in the UK and I am proud of that; I want to keep that, but we need to be able to change. That is why I have told your colleague, Gavin Newlands, that we should not lose the ability for companies to make changes, but we should change when the Section 188 notice has to be served. I would argue that it would not be in line with British values to watch strong legacy companies like British Gas and others simply die over time, because, ultimately, that is what we will face.[9]

However, Justin Bowden, an officer at the GMB Union, told the Committee that fire and rehire tactics were not necessary and harmed meaningful negotiations with the union and workers. Workers at British Gas have gone on strike to protest the use of fire and rehire.

1.4   Calls for reform

The use of fire and rehire tactics during the course of the COVID-19 pandemic has led to a number of calls to reform the legislation.

Professor Alan Bogg, a Professor of Law at the University of Bristol, argued that under the current law the balance of power lies too much with the employer:

  • In short, a determined employer with the right legal advice can achieve its goal of reducing terms and conditions with relative ease. English law provides the signposts to navigate the way, abetted by a wide scope for legally compliant business reorganization dismissals. In other words, the contractual bargain is sacrosanct in English law except when it runs up against the employer’s powers of dismissal, the totemic managerial prerogative of the English common law.[10]

Professor Bogg argued for a number of reforms that could provide greater protection to employees in these cases. His proposals include:

  • Amend the Employment Rights Act 1996 to make protection from dismissal a ‘day 1’ right in cases of dismissal and re-engagement;
  • Amend the Employment Rights Act 1996 to provide that dismissal and re-engagement will be unfair if the employer had reasonable economic alternatives;
  • Amend the Employment Rights Act 1996 to provide that when assessing the reasonableness of the dismissal it is relevant to consider whether the employer had consulted with unions and obtained their agreement;
  • Amend the Trade Union and Labour Relations (Consolidation) Act 1992 so that workers as well as employees count towards the threshold of 20 dismissals.

In Parliament, Gavin Newlands MP has introduced two identical Private Members Bills to reform the law on dismissal and re-engagement: the Employment (Dismissal and Re-employment) Bill and the Employment (Dismissal and Re-employment) (No.2) Bill. The Bills would add a new provision to the Employment Rights Act 1996 to make a dismissal automatically unfair if the purpose of the dismissal was to re-employ the employee on less favourable terms. This approach would effectively make dismissal and re-engagement unlawful in any circumstance.

Introducing the second of the two Bill in the House of Commons in November 2020, Mr Newlands argued that it would provide protection to employees:

  • My Bill would make a simple amendment to the Employment Rights Act 1996 to add the re-employment of a worker on less favourable terms and conditions to the definition of unfair dismissal. That would allow employees to use the existing employment tribunal system to enforce their rights if required, and would mean that employers could no longer act with impunity. Amending the Act in that way would allow employees targeted for fire and rehire to take cases against unscrupulous employers and, where appropriate, secure reinstatement and compensation. In short, the Bill creates no extra bureaucracy, no extra administration and no extra complexity, but creates a necessary protection for workers that employers will be forced to respect or face judicial proceedings.[11]

Neither Bill has been given a Second Reading and it is unlikely that they will pass through all of their Parliamentary stages.

During an Opposition Day debate on 25 January 2021, the Business Secretary Kwasi Kwarteng told the House of Commons that the Government had asked Acas to conduct a review of fire and rehire:

  • As I was saying, we have been very clear that this practice is unacceptable and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully), who is the Minister responsible for labour markets, has condemned the practice in the strongest terms on many occasions in this House. We have engaged ACAS to investigate the issue and it is already talking to business and employee representatives to gather evidence of how fire and rehire has been used. ACAS officials are expected to share their findings with my Department next month and we will fully consider the evidence that they supply.[12]

In response to Parliamentary Questions the Government has confirmed that it received the report from Acas in February 2021 and that it will be publishing its response in due course.[13]

On 13 April 2021, an Early Day Motion was published which calls on the Government to publish the Acas report. It also calls on the Government to legislate to limit the use of fire and rehire and to announce proposals in the forthcoming Queen’s Speech. To date, 47 MPs have signed the motion.

[1]     Hollister v National Farmers’ Union [1979] ICR 542

[2]     St John of God (Care Services) Ltd. v Brooks [1992] ICR 715

[3]     Catamaran Cruisers Ltd v Williams [1994] IRLR 386; Garside and Laycock Ltd v Booth [2011] IRLR 735

[4]     McGibbon v OIL Ltd [1994] EAT 537/94

[5]     Section 188, Trade Union and Labour Relations (Consolidation) Act 1992

[6]     Section 195, Trade Union and Labour Relations (Consolidation) Act 1992

[7]     Transport Committee, The impact of the coronavirus pandemic on the aviation sector, HC 268, 13 June 2020

[8]     Transport Committee, Oral evidence: Coronavirus: implications for transport, HC 268, 16 September 2020, Q624

[9]     BEIS Committee, Oral evidence: The impact of coronavirus on businesses and workers, HC 219, 2 February 2021, Q354

[10]    Alan Bogg, Firing and Rehiring: An agenda for reform, Institute for Employment Rights, 9 October 2020.

[11]    HC Deb 4 November 2020 c329

[12]    HC Deb 25 January 2021 c88

[13]    PQ183120 [on Re-employment], 22 April 2021


Documents to download

Related posts