Employment Rights Bill: How is fire & rehire changing?

The Employment Rights Bill will be bring changes to the fire and rehire process.

The term ‘fire and rehire’ refers to the practice of changing employment terms and conditions through dismissal and re-engagement, typically in situations where it has not been possible to obtain consent for such changes from employees or a trade union, if one is established.

The practice has been under increased scrutiny in the last couple of years, especially following a number of high-profile cases where it was used to the detriment of hundreds of workers. In response, a code of practice on fire and rehire was introduced by the previous government. An employment tribunal is able to increase an employee’s compensation in certain circumstances by up to 25% if an employer has unreasonably failed to comply with the code.

The code of practice, effective since July 2024, emphasises that ‘fire and rehire’ should be employed only as a last resort. Although the practice remains lawful, it poses significant risks to an organisation’s reputation and industrial relations.

What’s going to change as a result of the bill?

The government acknowledges that employers may have sound business reasons for seeking to change terms and conditions of employment. However, going forward, only those employers facing existential financial difficulties will be able to use it.

The proposed legislation places additional requirements on employers wishing to use the practice to enforce changes to terms and conditions of employment. Although the government does not intend to outlaw the practice completely, the new legislation will severely restrict its use.

Automatically unfair dismissal

The legislation will make it automatically unfair to dismiss an employee for:

• refusing to agree to a variation of their terms and conditions of employment, or
• because an employer intended to employ another person on varied terms to carry out substantially the same role,

unless the employer can show:

• evidence of financial difficulties that were affecting, or were likely to affect, the employer’s viability
• the changes were to eliminate, prevent, significantly reduce, or significantly mitigate the effects of those financial difficulties; and
• the need to make the change in contractual terms was unavoidable.

Even if the employer can prove that they have met these criteria, the employment tribunal will still have to assess whether the dismissal was fair in the circumstances. For example, the employer will need to show that they have properly consulted with the employees in question or offered suitable consideration. The draft of the bill also allows for the secondary legislation to outline what other measure employment tribunal is to consider in ‘fire and rehire’ scenarios.

New Requirement to Consult

Similarly to redundancy situations, employers proposing to dismiss and re-engage 20 or more employees will be required to consult with those affected. If an employer fails to consult, the affected employees will be entitled to a protective award. As a result of the recent consultation, the maximum protective award for failure to consult has doubled from 90 to 180 days’ gross pay per affected employee.

Penalties

If the employment tribunal finds the dismissal automatically unfair, the employees in question may be entitled to both basic and compensatory awards. Additionally, should employers fail to consult where required, each employee will be entitled to a protective award of 180 days’ gross pay.

Lastly, the 25% uplift for failing to follow the code of practice on fire and rehire will apply to the protective award as well as to any unfair dismissal compensation.

What should you do?

In anticipation of the changes, employers should audit their terms and conditions and carry out any changes required prior the new legislation comes into effect.

Additionally, some employers may wish to introduce or audit flexibility clauses in their draft contract of employment. However, those seeking to rely on flexibility clauses need to be mindful of robust case law covering this area and limiting the use of flexibility clauses.

We will be covering each new change following the Employment Rights Bill, looking into the details of what could impact you and your business. Keep an eye out on our website and across our social media as we publish our full set of informative articles that will help you understand the changes employers are about to face.

If you have any questions about fire and rehire, or need assistance preparing for the new Employment Rights Bill, be sure to get in touch – our expert team will be willing to help.

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