The Employment Rights Bill, published on 10th October, introduces significant changes across a wide-range of employment practices. In this week’s blog, we explore the Bill’s proposals for fire and rehire and what businesses need to do to prepare for them.
What is Fire and Rehire?
‘Fire and rehire’ is a colloquial term used to describe ‘dismissal and re-engagement’.
If a business needs to change employee terms but can’t reach agreement, the employer can give notice. This ends their employment on the old terms (fire). The employer can then immediately offer re-engagement on the new terms (rehire). The employee can choose to accept the offer, in which case their employment continues on the new terms. Or they can reject the re-engagement offer, in which case they are dismissed and their employment ends.
Current legal position
Fire and rehire involves a dismissal and this brings unfair dismissal into play. To fairly dismiss an eligible employee (with over two years’ service), an employer needs a ‘potentially fair reason’ as set out in the Employment Rights Act 1996. In ‘fire and rehire’ cases, the potentially fair reason relied on for the ‘firing’ is ‘some other substantial reason’ (SOSR).
An employer can currently justify changing contract terms by showing a good business reason (Hollister v National Farmers Union). They must also show they reasonably consulted with the employee and made the change fairly. If they do, such a dismissal can be fair for SOSR.
So, in a strict legal sense, ‘fire and rehire’ is an option open to employers. However, it also carries risks — including claims and wider commercial harm — if not managed correctly.
Changes in the Employment Rights Bill
The new Bill is a significant departure from the current approach. Once enacted, it will be automatically unfair to dismiss an employee for refusing to accept a change in their terms of employment or to replace them with another employee under varied terms to carry out substantially the same role. There is a narrow exception for businesses in financial distress, specifically when insolvency is imminent and no reasonable alternative exists.
This effectively removes fire and rehire as a tool for employers to enforce contract changes, except in cases of extreme financial difficulty. The narrow scope of the financial distress exception means most businesses won’t be able to use this practice once the Bill becomes law.
Preparing for the new law
The Bill is not expected to come into effect until at least 2026, so for the time being, fire and rehire remains a legal option, provided it’s handled appropriately. Employers need to continue following best practices, including establishing a sound business reason for any changes and consulting with employees. The statutory Code of Practice on dismissal and re-engagement should also be followed.
For businesses anticipating future changes to employment terms, this transitional period offers an opportunity to address problematic contract terms. Employers should act now if they need to renegotiate existing contracts.
Key additional actions for employers
To prepare for the changes, employers should:
- Review Employment Contracts: Ensure contracts contain a clear variations clause that allows for changes in terms without needing employee consent. While variation clauses can reduce reliance on fire and rehire, they must be used reasonably to avoid claims of constructive dismissal.
- Audit Current Contracts: Conduct an audit of existing employment contracts to ensure they align with the business’s long-term needs. Any undesirable terms should be addressed now while fire and rehire remains legally viable.
- Focus on Employee Buy-In: Once the new rules come into effect, employers will need to rely more on securing employee agreement for any changes. Offering incentives or benefits to encourage employees to accept new terms will become crucial, as dismissals for refusal will no longer be an option.
- Avoid Short-Term Fixes: Going forward, employers may need to exercise patience with legacy terms, allowing outdated contract provisions to phase out naturally through employee attrition or retirement.
Summary
The Bill’s proposals for fire and rehire, in their current form, are significant. They effectively ban dismissal and re-engagement as a ‘fair’ route to changing contractual terms and conditions unless the business is in distress.
But, significant as this might be, nothing is changing for the next year or so. There is also still the possibility that the Bill’s proposals will, themselves, be altered as it makes its way through Parliament.