The issues and risks of fire & rehire

Our employment experts look into the issues and risks of ‘fire and rehire’.

When an employer wants to make changes to an employee’s terms and conditions of employment, the starting point must be what the contract says.

The contract of employment is likely to include a clause that allows for reasonable variations of contract on notice to the employee. If there is no such clause – or the contemplated change would fall outside of the reasonable test – the employer will need to consult with the employee before making any change. If the employee agrees to the change, the matter can be concluded by issuing the employee with a letter of variation or an updated contract.

If the change does not benefit the employee (such as a pay rise or some other advantage, for example), to ensure the variation enforceable, the employer should make a payment to the employee in consideration of the agreement to the change. The value of that can be agreed between the parties.

Fire & rehire

It is an express term of most contracts of employment that they can be terminated by the employer on notice. This means that if an employee does not agree to the change, the employer can dismiss the employee and issue them with a new contract of employment with the new terms and conditions. The employee can choose either to accept or reject this.

Whether the new job is accepted or rejected, the employee can claim the dismissal was unfair; although such a claim is only likely to be brought where the offer of new employment was rejected.

Unfair dismissal

For a dismissal to be fair, it must be for a fair reason such as conduct, capability, redundancy or some other substantial reason.

In a situation where the employer is looking to change terms and conditions of employment, the dismissal is because of the refusal to agree to the changes. The refusal to accept the variation of contract amounts to some other substantial reason capable of justifying the dismissal. Whether the tribunal accepts this defence will depend on the business case for the variation of contract, the way in which any negotiations were handled and whether any other employees agreed to the change.

However, this position is about to change.

Employment Rights Bill

The Employment Rights Bill says that a dismissal will be unfair if the principal reason for it is that the employer sought to vary the employee’s contract of employment, and the employee did not agree to the variation.

This means that if an employer dismisses and rehires an employee to enforce a variation of contract, the dismissal will be automatically unfair.

As the dismissal will be automatically unfair, the employer will no longer be able to argue some other substantial reason for the dismissal. Additionally, there will be no reduction in compensation, as the employer will no longer be able to argue that had it followed a fair procedure, it would still have dismissed (the Polkey argument).

For the dismissal to be found to be fair, it would need to come within the ‘financial difficulties’ exception.

What can you do?

If – following negotiations with an employee – any variation cannot be agreed, unless the variation is essential to protect the business, no further action can be taken. In the event the employee opts to dismiss with a view to rehiring, contrary to the new position, any dismissal will be automatically unfair.

We can assist by reviewing your reasons for the variation of contract, advising you on potential fairness and your options and next steps.

If you and your business require expert guidance on how to navigate any issues you may have encountered regarding fire and rehire, please get in touch – our team will be happy to help.

Our Legal 500-rated employment law & business immigration team are experts in guiding businesses of all sizes and backgrounds through a range of issues that may arise.