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Government makes changes to its proposed ‘ban’ on Fire and Rehire under the Employment Rights Bill
Adrian Fryer
The Employment Rights Bill makes major strides towards ending ‘fire and rehire’. That’s the strategy where an employer, unable to secure agreement to new contract terms, dismisses staff and then offers to rehire them on the revised terms (or hires new people on those terms instead).
Until now, that approach has been lawful if there’s a genuine business reason and the process is fair (though it could still trigger unfair dismissal claims if mishandled). Some employers have used it as a strong-arm tactic to drive through changes to pay, hours or other conditions.
The Bill’s initial proposals made using fire and rehire almost impossible – it could only be used when the business was in significant financial distress. Responding to business concerns, Government amendments published in the summer soften that position. The new position on fire and rehire can be summarised as follows:
- Dismissal for a restricted variation – automatically unfair unless justified by serious financial difficulties
Dismissal for fire and rehire will be automatically unfair (unless justified – see below) where the proposed variation in the contract is a ‘restricted variation’. A restricted variation is:
- a reduction in pay;
- a variation to pensions;
- a variation in hours of work;
- a variation in timing or duration of shifts (which meet conditions specified by the Secretary of State);
- a reduction in entitlement to time off;
- the addition of a variations clause; or
- any other variation specified in regulations.
Dismissing someone for refusing to accept a restricted variation would count as automatically unfair – unless the employer can meet a very high threshold to justify it.
What is that threshold?
The employer would need to show:
- it had evidence of serious financial difficulties affecting (or likely to affect) business viability;
- the proposed contract changes were intended to address or mitigate those financial problems; and
- it had no alternative – the changes were unavoidable to keep the business afloat.
All three conditions must be met. And even then, a tribunal will still closely examine whether the process was fair — including whether the employer genuinely consulted with staff or any recognised union, and whether alternatives to dismissal (or any incentives to accept the changes) were seriously explored.
Put simply: unless the business is in very serious financial trouble and has no choice but to change staff contracts to survive, dismissal and rehire to make a restricted variation will be extremely difficult. If you do, you’ll face automatic unfair dismissal claims. The aim is to stamp out what the government calls “unscrupulous fire and rehire tactics” – using the threat of job loss to strong-arm people into worse terms.
- Dismissal for an unrestricted variation – potentially fair but subject to new statutory fairness ‘checklist’
There are some variations which an employer might want to make which are not restricted variations. Changing location and amending an employee’s contractual duties are two good examples. If an employer wants to fire and rehire to make an unrestricted variation, then the dismissal would be potentially fair. Usually, the issue of fairness would then be left to the reasonableness test in s98(4) Employment Rights Act 1996. However, the Bill proposes a gloss on this by giving tribunals a list of matters it must consider when deciding the fairness of a dismissal for refusing to agree to a variation that is not a restricted variation. The factors comprise:
- the reason for the variation
- any consultation carried out by the employer about varying the employee’s contract of employment
- anything offered in return for agreeing to the variation
- any additional matters specified in regulations
- Dismissal of employees to replace with people who are not employees – automatically unfair unless justified by serious financial difficulties
If an employer wants to dismiss an employee for the principal reason of replacing them with a person who is not an employee (as happened, for example, with P&O who replaced employees with agency workers), then such a dismissal will be automatically unfair if the replacement is carrying out substantially the same activities as the employee, and the statutory defence of being in serious financial difficulties does not apply.