Fire & re-hire – unfair practice or necessary evil?
The dismissal and re-engagement on new terms of hundreds of British Gas engineers made the headlines last month. The resistance of many long-standing staff and unions to the company’s plans of increasing hours and reducing benefits led to the company invoking the last resort of serving notice and immediately re-engaging those staff who did not agree to the new terms. This high-profile example of the realities faced by employers who consult staff about contract change comes at a time when many businesses will be considering whether they can afford to maintain pay and conditions for staff as they emerge from lockdown.
In the House of Commons on 27 April, MPs debated so-called “fire and re-hire” tactics used by employers to bring about detrimental changes to employees’ terms and conditions. Although there was no indication in the Queen’s Speech on 11 May that the government proposed changes to the practice, Business Minister Paul Scully MP has stated that fire and re-hire “should only ever be used as an option of last resort”, and that it is “completely unacceptable to use simply as a negotiation tactic”. ACAS has presented a report to the government on the subject, which has not yet been published. The minister went on to make the point that while the government must protect workers from unfair practices, it must also allow businesses to take the difficult decisions necessary to preserve their commercial viability.
Dismissal and re-engagement remains an option available to companies who need to make changes to employees’ terms. Provided a reasonable consultation exercise is carried out, and employees’ objections to the proposed change are properly considered, with a view to trying to come to agreement, giving notice to terminate existing contracts and immediately re-employing on new terms, may be a reasonable step for employers to take. Such action does bring the risks of potential unfair dismissal and other claims, albeit that compensation awarded may be relatively limited if the employee fails to mitigate their loss by accepting the new contract. The risk to employee relations and company reputation caused by a “fire & re-hire” process may be much more significant than the legal risk and we recommend taking detailed advice at the outset of a proposal to vary employee terms.