firing and re-hiring

Why might a business use the ‘firing and re-hiring’ method? Following a recent paper by ACAS, this article looks at the practice and the risks involved.

For most organisations, there will, for whatever reason, come a time when they want (or need) to change employees’ terms and conditions. Ideally that’s done through discussion with employees and with their consent. However, if an employer can’t get that consent, one option open to them is to dismiss the employee and offer re-engagement on the revised terms – so-called, ‘firing and re-hiring’.

This is certainly not a new practice, however its use has seemingly increased since the onset of the Covid-19 pandemic. As we await further input from Government, an ACAS paper and a recent tribunal decision make this a good time to look at why, and how, the practice is used, and how employers can safeguard against any potential risks if they are looking to take this approach.

Dismissing employees for refusing to agree to new contractual terms

You can read our article on how to change employment contracts to reduce pay and hours here. In brief, if an employer wishes to change an employee’s terms and conditions of employment, we recommend that they should seek the employee’s consent and consult with them. It is only after those steps have been taken that it is potentially safe to move to dismissal with the offer of re-engagement.

The offer of re-engagement is not a factor considered when determining whether the dismissal is fair. However, if an employee unreasonably refuses that offer of re-engagement, the employer can argue that the employee has failed to mitigate their loss.

The political landscape around firing and re-hiring

Dismissal and re-engagement is under close scrutiny and something which the Government had said would be investigated “when parliamentary time allows”.

A number of high-profile politicians have raised concerns about the practice and when it was debated by MPs on 27 April 2021 the Business Minister said ‘firing and rehiring’ “should only ever be used as an option of last resort”. Several high-profile organisations have also contributed to the debate, including the TUC who have called for it to be banned.

ACAS’ fact-finding report on firing and re-hiring – prevalence and perspectives

ACAS were asked to conduct a fact-finding exercise into the practise of dismissal and re-engagement, and they reported to Government in February 2021. Their report has now been made public and can be found here.

ACAS’ report largely focuses on the prevalence and perspectives of ‘firing and re-hiring’. They also looked at potential measures to address the concerns in relation to the practice.

In terms of prevalence of use there was mixed feedback, with some people saying it was being used more frequently and others maintaining that it is not used as a matter of routine. Others commented that the practice had been around for a long time and had been used quite a lot historically. There was also some corroboration of the feeling that its use had increased during the pandemic.

The perspectives on the use of dismissal and re-engagement were also on a spectrum from people feeling that it can never be justified to others feeling that it can be necessary but should only be used as a matter of last resort.

ACAS’ fact-finding report – potential future measures

Part of the focus of the ACAS report was to explore whether any measures should be taken to address the practice and, if so, what those measures might look like. The respondents to the paper put forward some potential solutions including:

  • tightening the law around unfair dismissal;
  • restricting the use to where it is a genuine and unavoidable option of last resort, so that employers must show that they have explored all reasonable alternatives; and
  • extending the ability of the tribunal to scrutinise the rationale for using dismissal and re-engagement by looking behind the business case.

We will have to wait for the Government’s response to the report and any proposals that are put to parliament before having a clear view on how the law in this area will develop.

What is clear is that there appears to be a real driver towards change and increasing protection towards employees. However, this needs to be balanced against the needs of businesses who may very well be looking to change terms and conditions to avoid potential redundancy situations or the business no longer being viable.

Fair consultation – a key component

Whilst we await further input from parliament there has been an interesting case in relation to firing and re-hiring which highlights the importance of following a fair, reasonable and meaningful consultation prior to dismissing an employee.

Under the current law, if an employee is dismissed and offered re-engagement on new terms then their potential claim will be for unfair dismissal. A respondent employer is likely to argue that a dismissal resulting from the need to change an employee’s terms and conditions falls under the potentially fair ground of ‘some other substantial reason’. For an employee to successfully succeed with their claim they would need to show that the employer did not have a fair reason for the dismissal and/or that they did not follow a fair process.

In the case of Khatun v Winn Solicitors, the tribunal found that a solicitor was unfairly dismissed for refusing to agree changes to her contract of employment. She had been asked to agree to a change in her terms and conditions so that they would have the unilateral ability to reduce her pay and hours to 80% or place her on furlough. Whilst she said that she would consider the change as and when necessary, at the time of asking she was covering for her furloughed colleagues, and she therefore felt that it was unreasonable to ask her to consent to the change at that time. Having refused the change, she was dismissed.

Although the tribunal commented that the underlying rationale behind the proposed change was sound, they found that the dismissal was unfair because of a lack of meaningful consultation and a failure to reasonably consider alternatives to dismissal. This was largely driven by evidence that the employer’s approach, from the very outset, was that if an employee did not consent there would be no negotiation and that dismissal would follow.

This case highlights that, for now at least, tribunals are minded to agree that dismissal can be fair if an employee refuses proposed changes to their contract which are reasonable and supported by a sound business rationale, however, a fair, reasonable and meaningful consultation must be conducted.

What does fair look like?

All cases are fact specific but below are some of the key points that tribunals will take into consideration when determining whether or not dismissal was fair in the circumstances:

  • The employer’s motives for introducing the changes;
  • The employees’ reasons for rejecting the changes;
  • Whether the employees were given reasonable warning of the proposed changes;
  • Whether the changes and full effect of those changes have been sufficiently and clearly explained to the employees;
  • Whether the employer has undertaken an assessment of the impact of the changes on employees and whether it has considered alternatives to any changes;
  • Whether the employer has attempted to obtain the employees’ voluntary agreement to any of the changes;
  • Whether a reasonable and genuine consultation process with the affected employees has taken place. This will include listening to their reasons for rejecting the changes, responding reasonably to objections and making concessions, where reasonable to do so;
  • Whether a majority of the employees affected have accepted the changes; and
  • Whether any recognised trade union recommended or objected to the changes.

Businesses are continuing to face challenges because of the pandemic and, let’s not forget, Brexit. If your business is facing the need to make changes to employees’ contracts then please do get in touch, as each case is fact specific and seeking advice at an early stage can make all the difference.