Fire and rehire: Guide for employers

Where an employer needs to make contractual changes to an employee’s terms and conditions this should always be approached through consultation and agreement with the employee, or employees, involved.

In exceptional circumstances, where there are genuine and pressing business needs and agreement cannot be reached, employers can sometimes be justified in unilaterally changing workers’ terms and conditions by terminating their contracts and re-hiring them on new terms and conditions.

The CIPD’s view is that 'fire and rehire' practices should only ever be considered as an absolute last resort; if changes to employment contracts are critical and voluntary agreement is not possible.

From July 2024, for England, Wales and Scotland, the UK's first Statutory Code of Practice on ‘Dismissal and Re-engagement' will come into effect. The Code imposes expected procedures on employers wishing to use 'fire and rehire'. The Code demonstrates that 'fire and rehire' should be a last resort following meaningful consultation with employees or their representatives.

Although there is, as yet, no ban on the practice of 'fire and rehire', the statutory Code, prepared by the previous government, carries serious risk of costly claims and wider commercial repercussions.

The new Labour Government has indicated that it intends to replace the statutory code with a strengthened code of practice. Labour's plan acknowledges that businesses may need to restructure where there is no alternative, but that there must be a proper process based on open dialogue between employers and workers. Labour's plans propose restricting fire and rehire to very limited circumstances if the alternative is bankruptcy and mass redundancy and improving remedies against abuse.

Employers must recognise that 'fire and rehire' creates a high risk of reputational damage and an adverse effect on employee relations. It should only be undertaken after extensive consultation and consideration of all other alternatives.

In this guide, we examine the practice of ‘firing and rehiring’ and, more importantly, ways to find a different solution.

Content

Context
Varying the terms and conditions of employment
'Fire and rehire' statutory code
'Fire and rehire' in the courts
Importance of empathetic management
Example scenarios
Case study example
Acknowledgements

Context

Heightened disruption and business challenges

Organisations facing a period of operational disruption, increased supply costs and loss of revenue may need to react, adapt and effect change to their processes.

As a matter of contract law, it may be possible to agree contractual changes to employment terms and conditions even if there is no immediate consent by negotiating agreement with employees, either through individual or collective discussion.

But a context of heightened disruption and business challenges may mean that some employers are forced to consider 'firing and then rehiring' their employees. This may happen, for example, where an agreement can’t be reached to vary the previous terms and conditions. In these situations, employers may dismiss employees from their current contractually-agreed employment and offer new terms and conditions. This may happen where the employer feels that there is a significant risk of the business being impacted, or that the business' survival is a potential consequence.

Employers should always look to bring about a mutual agreement to change contracts before 'fire and rehire' is considered. This may be achieved if employees understand the immediate and pressing business need for change; for example, to reduce costs and/or improve efficiency to compete, or indeed survive.

Varying the terms and conditions of employment

Why would employers seek to change contractual terms and conditions?

Reasons that an employer might seek to change the contractual terms and conditions of their employees may stem from a need to:

reduce costs (salary/overtime and/or benefits),
align with competitive or comparable internal or external market factors,
change the actual or range of working hours,
introduce or amend shift patterns,
better-meet customer demands,
increase flexibility in the job role,
upskill or multi-skill,
improve operational efficiency and effectiveness to stay competitive, or,
impose post-termination of employment restrictions to protect business interests.

Variations permitted within existing contractual terms

Employers should review the terms of the existing employment contract to see if there is a flexibility clause that purports to allow variation within the current terms.

Even if there's a flexibility clause that seems to allow a change, employers may still be in breach of contract by unilaterally imposing a change. Clauses along the lines of: “The company reserves the right to make reasonable changes to your terms and condition of employment” would only suffice for minor contractual changes to be made – for example, a minor adjustment to tasks within a job role or a minor change to working hours within current business operating hours.

A variation or flexibility clause is unlikely to be accepted in a tribunal to unilaterally impose any fundamental contractual change. Matters such as a reduction in pay, significant variation of working hours, reduced contractual benefits, and so on, are unlikely to be incorporated without the consent of the employee.

Employers must only use flexibility clauses to attempt reasonable changes, providing reasonable notice and informing and consulting employees fully prior to the change. For example, using a flexibility clause to change someone's work location may be unreasonable if the employee cannot drive or if there are no public transport options available.

Changes are more likely to be accepted if a variation clause specifically and unambiguously anticipates the proposed change.

Unilateral variation of contract – without consent

Where an employee is not willing to accept the proposed changes, an employer may choose to impose it on them as a unilateral variation of contract. This is a risky process for an employer to follow for the reasons outlined below:

Continuing to work under new terms

If an employee is not willing to accept a proposed change, but the employer imposes it on them anyway, and the employee continues to work under the new terms and conditions without making their objections known to the employer, after a period of time (usually months rather than weeks) the employee could be deemed to have impliedly accepted the change, and it would then be incorporated into their contract of employment. Exactly how long an employee must have continued to work before being deemed to have impliedly agreed depends on the facts of each case.

The UK Government Dismissal and Re-engagement Code of Practice recommends that employees who work under the new terms, but under protest, should make it clear (either directly or via a representative) in writing that they are doing so and be explicit about what terms they do not agree to.

Employers should not assume that an employee has accepted a change just because they have not specifically objected. This is especially the case regarding changes that do not impact the employee for some time, such as changes to sick pay, maternity pay or redundancy entitlement.

Example:

In the case of Rigby v Ferodo (1988), wages were cut by 5% to prevent closure. Rigby made it known that he did not accept the reduction but continued to work for over a year. He then claimed the amount he had lost (£30 a week) during that period. The House of Lords decided there had been a repudiatory breach of contract by the employer and the employee was entitled to claim his shortfall in full.

This case illustrates that continuing to work is not always sufficient to constitute an implied acceptance of the variation, and wages reduced without consent meant that employees were entitled to claim the full amount of their continuing loss.

Working under protest

If the employee works under the new terms and conditions, but under protest (in which case there is no acceptance by the employee), the employer would still be in breach of contract and the employee can issue a claim for this breach.

If the breach of contract is sufficiently fundamental, the employee could resign as a result of the breach and claim constructive unfair dismissal. Such a claim would go before an employment tribunal (assuming they have the necessary qualifying service) as well as pursuing a breach of contract claim. There will be a limit on the time an employee can continue to work under protest and keep open the option of resigning and claiming constructive dismissal. An employee may also claim that there has been an unauthorised deduction from their wages if the change affects pay.

As mentioned, apart from employment tribunal claims, an employee can bring a claim for breach of contract, but in a civil court. They will have six years from the date of the breach as long as the employee has made it clear that they do not accept the terms and are working under protest.

Refusal to work to the new terms

An employee who refuses to work to the new terms will force the employer to either negotiate the employee's departure using a settlement agreement which will usually involve paying the employee compensation, or consider dismissal (with the employee able to bring a potential unfair dismissal claim). Alternatively, the employer may agree to allow them to continue on their existing terms.

'Fire and rehire' statutory code

When 'fire and rehire' is used

If the practice of ‘fire and rehire’ is engaged then the employer would be aiming to vary the terms and conditions of employment by first firing the employee (that is, dismissing them following a period of meaningful consultation), followed by rehiring them by offering new and revised terms and conditions. If an employer believes there is a serious and pressing need to make such a change then the following Code must be followed.

'Fire and rehire' code of practice guidance

From July 2024, the first statutory Code of Practice relating to ‘Dismissal and Re-engagement' will come into effect. The Code will impact 'fire and rehire' (dismissal and reengagement) processes across England, Wales and Scotland from 18 July 2024.

The Code sets out the legal expectations that businesses must and should follow in a situation where dismissal and reengagement may be used. It aims to avoid, manage and resolve conflict resulting from the practice. If an organisation is found to be in breach of the Code there is a potential for a 25% uplift in tribunal compensation awards.

While the Code does not make fire and rehire illegal it provides legal guidelines around the narrow remits within which the practice is allowed. It applies regardless of the numbers of employees who may be affected by the proposals, and whatever the employer's reasons are for seeking to enforce the changes.

The Code indicates that an employer deciding whether to 'fire and rehire' must consider the following:

1.) Employers must not make direct offers to employees where there is a recognised trade union in place (where the offer relates to matters that the union would negotiate under a collective bargaining process). This applies unless collective bargaining processes have been exhausted.

2.) If there is a change in the terms of an employee’s written statement of particulars, employees must be notified of that change within one month of the new terms taking effect. Employers must always comply with standard legal obligations to supply a written statement of particulars.

3.) If any dismissal is to be seen as fair, then the employer must comply with the stages of a fair dismissal.

4.) If a ‘fire and rehire’ process is engaged, the employer must give as much notice as is reasonably practical

In addition, the Code strongly advises the following considerations should be followed:

1.) Sufficient information sharing and consultation

Information sharing with employees and the consultation process should not be seen as one-off events. All information should be shared as early as possible. A consultation should be conducted in good faith and for as long as is reasonable (therefore promoting trust and allowing feedback from all parties).

The Code continues to apply both where there is collective bargaining with a trade union and where there is no collective bargaining in place.

2.) Timely provision of information to the employee

Information about the employers’ proposals should be provided to the employees at an early stage. The information should be as detailed as possible and specify the reasons for the proposed changes. Example information that employers should provide includes:

the proposed changes (and what the new or revised terms would look like),
who would be affected by the proposals,
the business reasons for the proposed changes,
the anticipated timings for the proposed change, and
any other options that have been considered and the proposed next steps.

Once the information is shared, there should be scope for employees to ask questions and make counter-proposals.

3.) Suitable format of information provided

It's helpful to provide information in writing and be mindful of employees who are absent such as those on sickness or parental leave.

4.) Provide a reasonable amount of information

An employer may reasonably withhold some information (such as financially sensitive information) but must explain why the information is not being shared.

5.) Allow for meaningful consultation

Meaningful consultation means conversations should be undertaken openly and in good faith. Employers should be open about their objectives and the nature of the proposals. If no resolution can be reached, the employer should demonstrate that it has afforded reasonable consideration to counter-proposals and has re-examined its original plans. Factors to consider if ‘fire and rehire’ then seems likely are:

Risk to employer reputation.
Damage to relationships in workforce and with trade unions.
Potential risk for industrial action.
Risk of legal claims and the associated costs and time.
Whether the proposals have a greater impact on some employees rather than others.
Whether there are other reasonable ways for the employer to achieve their objectives.

If changes are agreed during a consultation process, then employers should communicate in writing, with detail of the changes and expected dates. Any change to a written statement of particulars should be issued at least one month before the new terms take effect. Employers should still invite feedback, even when changes are agreed.

If there are clauses in employment contract purporting to allow for imposing new terms unilaterally, employers should be mindful of the legal limitations on using such clauses.

6.) Be transparent

It is important that an employer is clear about dismissal and re-engagement if it is a likely prospect. However, threats of the prospect of dismissal should not be used, for example, as a negotiating tactic to pressure employees into agreeing to changes. Such strategies may damage reasonable negotiations.

Under the Code, an employer should contact Acas before raising the prospect of dismissal and reengagement. Dismissal and reengagement should be treated as a last resort following an open consultation process. Any notice period of potential dismissal and reengagement should be a minimum of the contractual or statutory notice whichever is longer.

Practical support such as relocation assistance for employees should also be considered. Employers should commit to reviewing the impact of their changes at a fixed date in future. The employer should reengage with the employee as soon as is reasonably practicable

Notice and acceptance - or not - of new terms

If 'fire and rehire' is engaged, the employer must provide the appropriate contractual or statutory notice (whichever is greater) to dismiss from the current contractual terms. It then immediately offers to rehire the employee on revised contractual terms, with the new terms issued to commence on the day following the termination date of the current contract.

If the employee accepts the new terms, their employment will continue under the new terms and their continuity of service will be preserved.
If the employee does not accept the new terms, their employment will terminate and there is a risk that the employee could bring a claim for unfair dismissal (subject to having two or more years of service, or with less service if the claim can establish an automatically unfair dismissal for reasons related to matters such as maternity or whistleblowing). It will be for the employment tribunal to determine whether there was a fair reason to dismiss and whether the dismissal was fair and reasonable in the circumstances.
If the trade union accepts the terms on behalf of the employee but the employee objects and does not agree to be bound by the changes, any action the employee may be able to take will depend on whether there was a collective agreement formally incorporated into the contract of employment. If it was incorporated, including reference to changes “as from time to time” then the employee will be bound by the changes.

Questions to consider

In addition to the legal obligations under the Code, the risks of moral and reputational damage mean employers considering using the process should weigh up the following:

Is there a genuine and pressing business need that could confidently be defended in tribunal, which goes beyond what is believed to be 'wanted'?
Has full and meaningful consultation taken place and every other option and consideration been explored before making the final decision to 'fire and rehire'?
Could temporary variations to the contract be agreed as an alternative?
Has there been any compromise offered or acceptable 'sweeteners' that could be offered such as a monetary payment, an additional day’s holiday etc to reach agreement?
Has consideration been given to ensure that changes to terms and conditions required will not have any risk?
Has there previously been a TUPE process affecting employees, where changing terms and conditions would have to comply with the TUPE regulations which make changes to terms very difficult?
Have other wider and commercial factors been considered?

It is recommended that very serious consideration be given to the above before an employer takes such action as to 'fire and rehire' – and even then, the practice be used only as a last resort.

Further legal considerations

There are various further legal factors an employer must consider before contemplating or entering into a 'fire and rehire' process:

Questions to ask

There are various further legal factors an employer must consider before contemplating a 'fire and rehire' process:

Can the employer demonstrate that the Code was complied with?
The contractual obligations around wrongful dismissal: Irrespective of length of service, statutory or contractual notice must be served to avoid a claim of wrongful dismissal or breach of contract.
The statutory obligation around unfair dismissal: There is a two-year qualifying period for an employee to make a claim for unfair dismissal unless the individual can make a claim for automatic unfair dismissal.
Has meaningful consultation taken place? Irrespective of the numbers affected by any change consultation guidelines are as-follows:
- Individual consultation where fewer than 20 employees are at risk of changes to terms and conditions that could result in 'fire and rehire'. For these numbers there is no requirement for collective consultation, nor is there a minimum timescale to consult.
- Collective consultation where 20 or more employees are at risk of being 'fired and rehired'. In these circumstances the employer will need to carry out meaningful consultation and comply with collective consultation processes, including notifying the Insolvency Service’s Redundancy Payments Service by submitting the HR1 Form. If 20–99 employees are affected, the minimum consultation period is 30 days. If 100 or more employees are affected, the minimum consultation period is 45 days.
- Protective awards of up to 90 days’ pay per employee can be awarded for failure to comply with consultation requirements.
- Employees dismissed through a “fire and rehire” process would be treated as redundant for the purposes of collective consultation but would not be entitled to redundancy pay.

Legal view on whether the dismissal was 'fair'

Whether a decision to dismiss was fair, and whether the employer acted reasonably in dismissing for SOSR, would depend on the wider matters that led to the decision taken. As cited above, the first point of consideration will be whether the consultation that was conducted was meaningful. Further points that the courts would consider may be:

Were the reasons the changes were needed clearly explained and were they substantial, pressing business reasons?
Were the employees and trade union representatives involved provided with adequate details about the proposed changes and impact if the changes were not agreed?
Was enough opportunity provided to question and challenge the proposals and present alternative ideas and suggestions?
Business considerations – its size, options, and resources available to it.
Employee considerations and the level of detriment.
Were there any alternatives or compromises that the employer could reasonably have made, including temporary changes, financial compensation, or additional holiday entitlement?
Had any other employees accepted the revised terms and how many relative to those who refused?
Had any trade union representative involved recommended that the changes be accepted?

Example

The case of Slade v TNT Ltd (2011) is an example of where the employer was able to demonstrate, to the tribunal’s satisfaction, that the need to cut costs through the removal of a contractual bonus was held to be fair.

Demonstrating attempts to avoid 'fire and rehire'

Employers should always aim to avoid 'fire and rehire' and be able to demonstrate that they have explored every alternative avenue. Looking for alternative options demonstrates that the organisation is taking meaningful consultation seriously and not acting on this being 'a means to an end' to achieve dismissal and re-engagement on new terms.

It is worth organisations noting that any defined statutory consultation periods are the legal minimum number of days, not a maximum or absolute; if there is still opportunity that compromise and agreement can be reached, keep talking.

In what situations could 'fire and rehire' be considered justifiable?

If, after extensive communication, consultation and reasonable compromise have taken place, there is still refusal to accept the changes, the following situations are examples of situations which may be considered justifiable for 'fire and rehire':

Where a company faces potential insolvency, through increased costs and where redundancy is not an option, as there is not a reduction in workload.
When there is an urgent and pressing need to reduce salary or benefit costs for business survival, in conjunction with other business wide cost-cutting measures being implemented.
Where the cost of contractual redundancy pay is prohibitive and would have an impact on the need to make more jobs redundant. Where the change is to reduce the level of contractual redundancy pay as a means of saving more jobs.
Where an employer has traditionally operated a customer service operation i.e. Monday to Friday, 9am–5pm, but through a new business contract, requires the service to also cover Saturday working. As a consequence, change in working hours cover to be rostered for five days over a six-day operation is required.
Where a company has relied on voluntary participation in an out-of-hours “on call” roster but which places the business at risk of failing to comply with Service Level Agreements with customers. Where the change is for a contractual requirement to participate in “on call” arrangements.
Where voluntary agreements to change terms and conditions are reached with the vast majority of the workforce, but a number of people are still resistant to the change and no other compromises can be reached.

Importance of considerate and empathetic management

Emphasise the why, what and how

Managing people through changing times can be difficult. Much emphasis needs to be placed on explaining the important “whys” and “whats” of the change.

What is also important is “how” the process is carried out. Managers and those responsible for making changes need to be considerate, empathetic and self-aware in communicating with employees and conveying their aim of seeking employee agreement. “Standing in the shoes” of employees being consulted with and having a high level of emotional intelligence can go a long way to achieving change in the most effective way.

Ultimately, employees may not have wanted or be happy with the outcome of a process that changes their terms and conditions. However, if they understand the reasoning, and believe the manner the process has been carried out was fair, respectful and aligned with the values of the business, there is an improved chance of being able to move forward with the new changes in a better, more open and transparent employee relations climate and an improved organisation culture for the business.

Example scenarios

Scenario 1: Changing contracted break times

A customer service team in a large, family-owned insurance company has good, long-serving employees, many of whom have become friends over the years. They have contracts of employment that have not been reviewed or updated for many years, and traditionally all employees in the department have a contractual clause entitling them to a mid-morning paid break at 10.45am and a mid-afternoon paid break at 3pm – both 15-minutes in duration – when they leave their offices en masse to go to the canteen.

This has started to become more problematic for the company, as having all employees leave for the 15-minute break at the same time is causing serious operational issues, especially in customer-facing teams, where the allocated times can be peak times for customer queries.

In the past, the directors have tried to discuss their concerns with employees. They’ve proposed removing the two 15-minute paid breaks, buying out the benefit by increasing employees’ salaries by 30-minutes per day and installing coffee machines in the office. This allows employees to take reasonable time to enjoy a coffee at their desk on an ‘as-and-when’ basis based on operational need, rather than having all employees on break at the same time. Unpaid lunch breaks of 30 minutes would continue as per the contract. However, employees did not accept the proposals in the past and, as a result, the employer took no further action at the time, since new orders were coming in and it was ‘never the right time’ to risk experiencing what might turn into a conflict.

The situation is now having a direct impact on service-level agreements and is causing customer complaints. Also, the directors have considered the cost of the outsourced catering company they engage and determined that, while they still plan to cover the costs for proposed lunch breaks, a better solution would be to install and provide free coffee machines in the offices and not use the canteen for morning and afternoon breaks.

The directors now propose to commence a formal consultation process to consider the removal of the fixed paid breaks and stop the serving of drinks during the morning and afternoon.

Scenario 2: Introducing different roster arrangements

A logistics company employs a number of drivers on traditional Monday to Friday, 9am to 5pm contracts of employment, working 37.5 hours per week.

Given the cyclical nature of their work, with peaks and troughs each week and at different times of the week, the company is finding that it is frequently asking drivers to work overtime on some days and weeks but at other times not having enough work to give them. As a result, it’s failing to meet service levels at their peak times and the cost of the overtime payments is reducing the margins it makes.

The drivers are happy with the current arrangements. They have defined fixed hours, regular and expected premium-rate overtime payments on the days known to be busy that they agree to work when asked and can expect to be paid for idle hours when there is no or reduced work.

The directors have had a shock when they have costed out the chargeable work and the amount they are paying in overtime premiums, plus the cost of no productivity on some days, where they are still paying for the time.

They’ve looked at the work demand, and identified that if they were to introduce a new working pattern of 150-hours to be worked over a four-week reconciliation period with a window of operation between 7am and 7pm Monday to Friday (which still equates to an average of 37.5 hours per week over four weeks, though some weeks would have more hours and other less), they would be able to roster the working hours for longer days on the busy days. This means there would be more rostered non-working days for when delivery work was known to be quieter, enabling the drivers to have guaranteed days off while still receiving the same contractual pay.

By proposing to continue paying monthly – based on annual salary divided by 12, but now with 13 reconciliation periods of four weeks rather than 52 reconciliation periods of one week – the company would reduce its overtime costs. The directors expect that the drivers may not accept what is being proposed and would be happy to continue with the current arrangements. However, the directors have forecast that to continue following this practice would, in a few months, cause the company to make losses.

Acknowledgements

Author

Disclaimer

Please note: While every care has been taken in compiling this content, CIPD cannot be held responsible for any errors or omissions. These notes are not intended to be a substitute for specific legal advice.