What employers need to know about the new ‘fire and rehire’ updates

It has been common practice for employers to dismiss and reengage their employees to make formal changes to their terms and conditions of employment.

This would be used when employees refused to agree to proposed new terms and effectively would be dismissed and re-engaged on different terms that are often less generous than their current terms and conditions.

Following this process is not unlawful, but employers should always take caution as they may be exposed to statutory and contractual claims.   Employers may also have collective consultation obligations if large numbers of employees are involved. 

In response to the public, which was mostly led by GMB union at the perceived increase of fire and rehire tactics, the government set the task to Acas to investigate. Acas investigated and published their report in June 2021.

In November 2021, Acas then published non-statutory guidance on the practice, saying that firing and rehiring should only be used as a last resort. In addition to opening employers up to legal claims and industrial action, Acas advises that the practice of firing and rehiring can damage staff morale, trust, productivity and working relations.

The new Acas code on ‘fire and rehire’

In March 2022, the company P&O ferries dismissed 800 employees, and this was shown via many media channels. Although this was not directly a ‘fire and rehire’ process, it was a ‘fire and replace’ process.

P&O offered ‘enhanced’ severance packages with the intention of ‘buying out’ the employee of any unfair dismissal claims and their right to protective awards for failing to consult with the unions. 

The conduct of P&O attracted significant media attention, including the government. On 29 March 2022, the government announced that a new statutory code of practice would be published on the use of ‘fire and rehire’ practices. 

The government is now going further, by developing a new Statutory Code of Practice, which will clarify and give some legal force to government expectations that employers should behave fairly and reasonably when seeking to change employees’ terms and conditions.

The government says the code will detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms. It will also include some practical steps employers should follow.

Tribunals will take the code into account when dealing with unfair dismissal claims; they will be able to apply an uplift of up to 25 per cent of an employee’s compensation where an employer unreasonably fails to follow it.

The new statutory code will not prohibit the practice of firing and rehiring. The Acas guidance published in November 2021 already gives employers tips on how to work with staff and unions when negotiating changes to terms of employment.

It is sceptical that the code will lead to significant changes in the way employers will approach firing and rehiring. Limiting reputational damage, keeping hold of valuable staff and swerving industrial action are probably greater incentives for finding agreement with staff and unions than compliance with the code.