Dentons

The infamously branded fire and rehire tactic has been increasingly taken up by employers who believe they need to force through changes to their employees' contracts. This tactic is often seen as enabling them to align contracts with their business models which have been adapted in response to fluctuating market conditions borne out of the pandemic. Fire and rehire has been widely condemned by many, including parliamentary bodies, political parties and trade unions who have called for legislative action to reform the law on unfair dismissal and limit its use. In June 2021, Acas published its report into the use of fire and rehire following an independent evidence-gathering exercise. We wrote an article on this, which can be found here. Following Acas's report, the government requested that Acas produce guidance on making changes to employment contracts to assist employers in considering all options before utilising the unpopular fire and rehire tactic.

What does Acas's advice cover?

The detailed guidance sets out factors employers should consider when contemplating making any changes to the terms and conditions of their employees' contracts. Firstly, the advice encourages employers to consider the precise issue the business is trying to solve, and whether those issues can resolved by making changes elsewhere in its organisation, without having to make any changes to employees' contracts. It encourages employers to put their mind to this at an early stage, saying it will greatly assist them when informing and consulting employees, representatives and unions, should contract changes still be necessary.

When might employers consider employment contract changes?

There are, of course, situations where it is reasonable and even necessary for employers to make changes to their employees' contracts. These include:

  • to ensure the contracts are up to date with new laws or regulations;
  • to better reflect a change in job role;
  • to introduce new terms and conditions, e.g. contractual redundancy pay or enhanced maternity, paternity, parental or adoption leave and pay;
  • to reflect changes to an organisation, e.g. a location move or change of people structure;
  • to help an organisation better adapt to changing customer needs; and
  • economic reasons, e.g. organisational restructure or staying competitive in a changing market.

In situations where employers believe it necessary to make contractual changes, Acas encourages them to engage with all affected staff and their representatives in a genuine and meaningful way. Genuine dialect between those affected may help reduce risks such as trust and confidence being compromised as a result of fire and rehire tactics.

The Acas guidance also provides practical advice to employers when proposing employment contract changes. It includes guidance on informing employees, trade unions and employee representatives of the proposed changes. It advises that employers should generally share the following initial information:

  • what the proposed changes involve;
  • the business reasons for the changes;
  • when the proposed changes are anticipated to take effect;
  • how the organisation considers the changes could benefit employees;
  • the employer's view on how the organisation will be affected if the proposed contractual changes are not made; and
  • what the proposed new or revised contractual terms will look like.

After the employer has shared this initial information, the guidance recommends that they should engage in consultations with employees and their representatives. It states that the consultation process can ultimately strengthen working relations and help drive support for the proposed changes. It may also enable the employer to collect feedback about the proposed changes which identifies issues that the employer may have initially overlooked.

The consultation process should be thorough and include all employees who may be impacted by the changes, including those who are on leave (e.g. maternity, paternity, sick, adoption leave) and ensure information is communicated in a way all employees will be able to understand, taking into consideration any disabilities or language barriers. Failure to do so may give rise to a discrimination claim. The guidance states that the consultation process is equally beneficial for employers as it is for employees. Even if an employer doesn't see immediate benefits in consultations, they are legally required to collectively consult with recognised trade unions or employee representatives if proposing to dismiss and rehire 20 or more employees at one establishment within a period of 90 days or less.  In these cases the employer is also required to notify the government of the planned dismissals – despite the fact that it intends to rehire the employees.

In trying to reach an agreement on proposed contractual changes, Acas provides three golden tips:

  • keep discussions constructive;
  • explore alternative options to reach a compromise; and
  • stay focused on trying to reach a consensus.

Acknowledging that reaching an agreement is not always achievable, should an employer conclude that it needs to fire and rehire, Acas warns this should be a last resort. Employers are reminded that, terminating the employee's current contract will amount to a dismissal. Therefore, employers should ensure that they:

  • have a fair reason for the dismissal;
  • follow a fair dismissal process;
  • provide the correct amount of notice; and
  • offer the employee the right of appeal against their dismissal.

Conclusion

Whilst firing and rehiring is not unlawful, the approach always carries risks which employers should be conscious of and seek to minimise. At best, fire and rehire will usually damage working relations, reduce staff morale, increase stress and affect performance levels. At worst, it can result in legal claims for breach of contract, unfair dismissal and failure to consult collectively as well as damaging an organisation's reputation. For these reasons, we agree with Acas's view that generally it should be a tactic of last resort. Despite that, there will be situations where it may be the only effective approach. 

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