D-BRIEF – Employment & Pensions Blog: Fire and Rehire

A poll carried out by the GMB union has found that 76% of the British public think that employer “fire and rehire” tactics should be banned.

The practice has gained media attention following the dismissal of hundreds of British Gas engineers who refused to agree to new contract terms that would mean lower pay and longer hours. As the Government considers a report by ACAS on the evidence it gathered about its use, we look at the practice and the likelihood of the Government intervening to stop it from happening.

What is ‘Fire and rehire’?

‘Fire and rehire’ (more formally known as dismissal and re-engagement) is where an employer dismisses staff and then immediately offers to re-engage them on different terms and conditions. The employee then has the choice whether to accept re-engagement on the new terms or not.

What is the legal position in the UK?

Where an employer cannot make changes to employment contracts consensually, but believes that those changes nevertheless need to be made, then it can either make the change unilaterally or go through a dismissal and re-engagement process. Unilateral variation brings the inevitable risk of a breach of contract claim including (if the employee resigns as a result) constructive unfair dismissal. As a result, dismissal and re-engagement is generally seen as the safer legal option. Yes, the dismissal part of the process gives rise to a right to claim unfair dismissal (if the employee has sufficient service) but the employer may have a ‘some other substantial reason’ defence. Furthermore, dismissal and re-engagement at least crystallises an employee’s ability to bring a claim i.e. an employee needs to act within the limitation period if they wish to challenge their dismissal, whereas with unilateral variation the risk of a breach of contract claim is ongoing.

Depending on the numbers of staff affected, dismissal and re-engagement can trigger the obligation to collectively consult.

ACAS cautions that the tactic should be a last resort by employers, and only after the following considerations: (1) all efforts should be made to reach an agreement with the employee; (2) the proposed changes to the terms and conditions must be necessary; (3) the impact on employee engagement and morale; and (4) the risk of legal action. ACAS further advises that employers should follow a fair dismissal process, which includes providing employees with a right to appeal.

The risk of legal action

An Employment Tribunal would need to consider whether the employee can show that it had ‘some other substantial reason’, that it followed a fair process, and that it acted reasonably in all the circumstances.

In the case of Catamaran Cruises v Williams the Employment Appeal Tribunal said that a Tribunal must examine whether there is a sound business reason supporting proposed changes to terms and conditions or whether the employer has acted arbitrarily. A ‘sound business reason’ might be, for example, financial hardship but that doesn’t have to mean that the change is crucial for financial survival. In the matter of Garside and Laycock Ltd v Booth, the Employment Appeal Tribunal suggested that a factor in determining the reasonableness of an employer’s decision to dismiss an employee for not accepting a pay cut could be whether management were also subject to the pay cut.

Will things change in this area?

According to the TUC, fire and rehire has become widespread throughout the pandemic. A quarter of those who responded to the GMB survey said that their terms had been downgraded since the beginning of the Covid-19 pandemic. Prime Minister Boris Johnson has called the practice “unacceptable”.

The government received a report from ACAS on 17 February 2021 and is considering its content, and whether to make it public. The issue was also debated in Parliament in April. From the public statements that have been made by the government, it is looking for a way of protecting employees from unfair practices but without getting involved in “commercial contractual matters between employers and employees”. The Business Minister has said that the government needs to “tread carefully”.

In our view, ‘fire and rehire’ will not be banned.  It has to be there as an option for employers who need to make changes to terms and conditions for business reasons, but can’t (for example) pay over the odds in order to buy employees out of their existing terms.

The employee retains a choice in the process because they ultimately don’t have to accept re-engagement and can claim unfair dismissal if they think the employer’s reason is weak or the process badly handled. However any employer about to embark on this process should be mindful of the increased sensitivities around the use of the practice at the moment and be prepared for greater challenge.

For more information on the issues mentioned within this blog, please contact a member of the Employment Team.

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