The Employment Rights Bill (the Bill), which had its first reading on 10 October 2024, proposes significant reforms to employment law in the coming years, particularly in relation to dismissal practices and workplace rights. You can read our overview of the Bill here.
In this article, Carla Cordona brings us up to date on the government’s plans to restrict the circumstances in which ‘fire and rehire’ practices can be used and examine the potential impact for employers.
‘Fire and rehire’ – the current position
‘Fire and rehire’ refers to the practice of changing employment terms and conditions by terminating existing employment contracts and re-engaging employees on new terms and conditions. Employers typically use this approach as a last resort when consent has not been obtained from employees or trade unions to contractual changes. Although the practice is subject to scrutiny, it is currently lawful.
The government introduced a Statutory Code of Practice on Fire and Rehire (the Code), which took effect in July 2024. The Code encourages employers to act fairly in negotiations over changes to terms and conditions and is admissible as evidence in legal proceedings to assess the fairness of such dismissals.
This means that any relevant provision of the Code will be considered by Employment Tribunals and courts. Failure to comply with the Code could result in a 25% increase in certain awards for Tribunal claims, so it is crucial for employers to act reasonably and in compliance with the Code during ‘fire and rehire’ exercises.
Proposed changes under the Employment Rights Bill
The Bill does not completely abolish the practice of ‘fire and rehire’, but it significantly restricts its use. It would make it automatically unfair to dismiss an employee for refusing to agree to a variation of their terms and conditions of employment, or because an employer intended to employ another person on varied terms to carry out substantially the same role.
An exception to automatic unfair dismissal would apply if the employer can demonstrate that they could not reasonably avoid the variation and that it was in response to financial difficulties affecting the ability to carry on the business. However, even if those conditions are met, the dismissal could still be deemed unfair, and employers must prove that the dismissal was fair in all circumstances.
The present: what can be done now?
Importantly, the proposed changes are unlikely to come into force until 2026.
Until then, employers considering changes to contractual terms — where there is a risk that those changes might not gain employee consent — should consider starting the process of implementing the changes now, within the limited window in which ‘fire and rehire’, outside of insolvency type situations, remains an option.
In terms of next steps, it will be important for employers to stay ahead of the proposed restrictions by reviewing contracts of employment to ensure that flexibility clauses are as broadly drafted as possible, allowing for a contractual right to make modest changes unilaterally, without obtaining employee consent.
However, employers should be mindful of the case law regarding the enforceability of flexibility clauses, particularly when they are used to implement changes that are less favourable to employees than their current terms and conditions.
Preparing for the future
The Bill will make it more difficult for employers to implement changes to terms and conditions of employment without the support and consent of employees or recognised trade unions.
Given these impending restrictions, employers should begin reviewing their template contracts now to ensure compliance.
Although fire and rehire practices are currently lawful, employers should be mindful of the guidance in the existing Code of Practice and carefully consider the potential risks, particularly reputationally, before using dismissal and re-engagement to vary terms and conditions.
Published 11 February 2025
