“Fire and rehire”: what is it and should it be against the law?

A recent poll undertaken on behalf of the GMB union has found that 76% of respondents felt that so-called “fire and rehire” should be against the law, and the GMB is pressing for change.  The most recent example of this practice to make headlines is British Gas’s decision to dismiss a large number of its engineers and offer them new terms, which include less pay and longer hours.

What is it?

Employers sometimes need or want to change the terms of their employees’ contracts.  There are several ways in which this can be achieved in practice.  One option is to terminate the existing contracts of the workforce on the notice previously agreed by the parties and then offer them new contracts to start immediately after the old ones come to an end.  If everyone – or at least enough employees – say yes to the new terms then the employer retains its workforce but on the changed contracts.  This is “fire and rehire” or “dismissal and re-engagement” and it’s nothing new but we tend to see it more frequently during difficult economic times.

What is the current legal position?

The practice is lawful but it’s worth noting that the law already protects employees in a number of ways.  Firstly, the terms of a contract cannot be changed without the agreement of both parties.   Secondly, those with at least two years’ service have the statutory protection against unfair dismissal.  This means that employers are required to follow a fair consultation process and identify a fair reason before terminating employment, otherwise they could be ordered to pay substantial compensation.  Depending on the planned changes and other relevant factors, pointing to a fair reason is not necessarily easy.  Thirdly, where an employer is looking to dismiss at least 20 employees then further obligations apply, with the risk of paying more compensation if they are not met.  For large scale dismissals of this nature, an employer must notify the government, consult with trade union representatives or representatives appointed by employees if there is no union, plus there is a minimum timeframe of either 30 or 45 days before any dismissals can take effect.  There is also the risk of bad publicity for the business and the negative impact on staff morale.  Of course the proposal of worse terms is going to be met with strong resistance, particular if it appears that savings are not necessary or could be made elsewhere.  In short, “fire and rehire” is relatively rare because it can come with a fair degree of risk for an employer.

How might the law change?

It’s unclear what specific changes the GMB, or the 76% of survey respondents, are calling for.  A change to either of the two components – contract law (i.e. the right to terminate on notice) and unfair dismissal law – both seem unlikely.  However, as set out above, businesses should already proceed with caution and take advice on the legal risks before going ahead.  The government has also said that businesses need to retain some flexibility to change contracts.  It could also be said that “fire and rehire” is a much more defensible practice than making redundancies, where of course jobs are lost because there is no alternative role or terms which the employer can offer, and it might be that cutting costs can save more jobs in the long run.