Briefing: Fire and rehire - the risks and benefits

07 Jul 2021

Since the start of the pandemic restrictions in March 2020, many businesses have had to make difficult decisions to ensure they survive. In this briefing, law firm rradar discusses the practice of fire and rehire.

Some of the steps taken have been with the full support of employees, who will be keen to ensure their employer’s business continues. In some cases, those steps include making changes to terms and conditions within the contract of employment as the business will not be in a position to continue as things were.

Where employees don’t agree to the proposed changes, the employer will often adopt what is known as ‘fire and rehire’.

What is ‘fire and rehire’?
Following the recently reported activities of several well-known businesses such as British Gas, the term 'fire and rehire' may appear to be new. However, the approach is not, nor is it unlawful – provided it is handled properly. The approach includes practices where an employer may dismiss and then re-employ workers on changed terms and conditions.

Over the course of the last year, there has been an increase in the use of ‘fire and rehire’ practices.

How should ‘fire and rehire’ work?
Varying contractual terms and conditions is usually achieved by an agreement between the two parties to the contract, the employer and the worker. The worker’s agreement may be either express or implied and can be given in a number of ways, such as:

A specific clause in the contract that allows such variation to occur;
Individual agreement directly through a consultation process; or
Through a trade union agreement if the contractual terms are covered by a collective bargaining agreement.

If an agreement cannot be reached, then the employer has two options: they either individually impose the change and hope for the workers’ consent, either implied or explicit, or terminate the existing contracts and re-engage those workers on new contractual terms which may be more preferable to the employer, known more recently as ‘fire and rehire’.

When firing and rehiring, the employer needs to show that there is a pressing business need/reason to justify the dismissals. This can fall into the dismissal category of ‘Some Other Substantial Reason,’ also known as SOSR. In order to be accepted as fair and reasonable by a Tribunal in the event of a claim, this reason needs to be serious, substantive and urgent – and for many businesses, the threat of closure caused by the pandemic restrictions would seem to be just that.

However, before moving towards a fire and rehire exercise, it is advisable for an employer to take a look at all other alternatives. Showing that all possible alternatives have been considered will stand an employer in good stead if any claims are made against them in a Tribunal. There may be variation or flexibility clauses in the existing employment contract that will give an employer the opportunity to avoid having to make dismissals. An employer must be mindful though that such changes have to be proportionate, made in good faith and not outside what the clause was originally worded to permit. Tribunals, when faced with ambiguity in a contract, will often interpret it against whichever party is trying to rely on it.

When is it used?
This approach is most commonly used for negotiations around organisational response to change, introducing temporary or permanent changes to contract terms such as working patterns, payment entitlements and working hours. However, when conducted appropriately, the process can also be used to reduce the need for redundancies.

The benefits
Some of the main ways in which a company can benefit from conducting fire and rehire practices include:

Allowing them to retain knowledge and skills that staff have acquired over their years of service;
Helping an organisation to position itself better in relation to external pressures including customer demand; and
Implementing such practices would carry less risk than imposing a contractual change which could result in a breach of contract.

The risks
Although fire and rehire – when done properly – is lawful, it is a high-risk strategy that employers should not action without clearly understanding the implications, risks and consequences involved.

Workers whose contracts are terminated following such a process may choose to raise claims of unfair dismissal against the employer. Therefore, employers should ensure that they have a sound business reason and can demonstrate that they have made genuine attempts to reach agreement with the workers affected.

However, even if a business does everything right, there is still a risk that they end up on the back foot if the matter reaches the press – their reputation can suffer if they lose the PR battle, which is entirely possible, given the ubiquity of social media and the way it can amplify what is being discussed in terms of contract negotiations.

For example, when British Airways announced in 2020 that it planned to cut 12,000 jobs and re-hire 30,000 on less favourable terms as a reaction to the significant drop in airline passenger numbers, there was a backlash in the press and social media that eventually resulted in the resignation of the company’s CEO.

What the law says
Where an employer is considering fire and rehire, there are a number of legal obligations and protections that they will have to consider:

Wrongful dismissal – employers need to provide the relevant statutory or contractual notice period to lawfully terminate a contract.
Breach of contract / constructive dismissal – where a less favourable change is imposed unilaterally (without dismissing) this will constitute a breach of contract unless the worker agrees to the change through express or implied consent. Attempting to impose significantly less favourable terms in this way may constitute a repudiatory breach of contract.
Unfair dismissal – if dismissed from their original contracts, qualifying employees may bring an unfair dismissal claim. Employers then need to prove that they had a fair reason for dismissal and that they acted reasonably in deciding to dismiss for that reason.

rradar is a specialist litigation and commercial law firm.