Fire and Rehire
Introduction
The problem under the existing legislative framework is that it is all too easy for a profitable entity to undertake a fire and rehire exercise relying on the potential fair reason of “some other substantial reason” for the dismissals that it makes. As a consequence of the range of reasonable responses test that is applied to judge the fairness of those dismissals, employment tribunals are left with very limited ability to challenge the underlying rationale for the alleged need to make savings.
The practice, therefore, has become increasingly popular as a tactic for unscrupulous employers to adopt to erode the terms and conditions of their workforce. In its Plan to Make Work Pay, Labour committed to end “the scourges of ‘fire and rehire’ and ‘fire and replace’ that leave working people at the mercy of bullying threats”. It promised it would reform the law to provide effective remedies against abuse.
What's included?
Clause 22 of the Employment Rights Bill creates a new right to claim automatic unfair dismissal when:
- an employee is dismissed by their employer for not agreeing to vary their contract; or
- if the employer dismisses the employee and replaces them with other employees or re-engages them on the varied terms to do the same job before they were dismissed.
The clause, therefore, addresses both a conventional fire and rehire exercise and the sort of dismissal tactics deployed by P & O in 2021 when they dismissed their existing workforce and engaged an entirely new workforce on less favourable terms and conditions.
The employer can avoid a claim for automatic unfair dismissal if it can show;
a) that the reason for the variation “was to eliminate, prevent, significantly reduce or significantly mitigate the effects of financial difficulties which, at the time of the dismissal, were affecting the employer’s ability to carry on the business as a going concern” ; and
b) the employer could not reasonably avoid making the variation.
Where an employer does not operate on “a going concern basis” (like some public-sector bodies) there is a parallel test whereby they have to show the reason for the variation “was to eliminate, prevent, significantly reduce or significantly mitigate the effects of financial difficulties which, at the time of the dismissal, were affecting the employer’s ability to carry on activities constituting the business”.
If an employment tribunal finds that the employer satisfies the above conditions, it will still have to determine if the dismissal was fair in all the circumstances. Whether the dismissal is fair will depend on factors such as whether there has been consultation with the appropriate representatives and whether the employer offered anything to the employees concerned in return for agreeing to the variation. Other factors an employment tribunal can take into account may be set out in further regulations.
What's not included?
The Employment Rights Bill falls short of banning fire and rehire outright, which is what Labour had originally committed to do in opposition. Whilst the circumstances in which fire and rehire exercises can be lawfully undertaken will be narrowed, the practice will still be permissible where an employer can establish an economic justification that threatens its existence. The test does, however, appear to set out a high standard to evidence this, and even if it can be met, the dismissal may still be unfair under ordinary principles if consultation has not taken place.
The Employment Rights Bill also does not address remedy with respect to fire and rehire dismissals. A key part of UK employment law is that in the main it punishes those who act in breach of it but does not stop them from doing so. Therefore, as an example, P & O chose to ignore all its obligations under the then-existing legislation and make the crass calculation that it would press on with making dismissals without engaging in any consultation or due process.
Even under strengthened legislation an unscrupulous employer may still act in the same way as this and ignore its obligations, worrying about any requirement to pay out compensation for another day. In order to address this, the Employment Rights Bill would need to have provided a mechanism in which employees could seek interim relief through the employment tribunal to ensure the contract of employment would continue to subsist through any judicial process where it is clear the newly introduced obligations had not been met. It does not do so. However all may not be lost on this.
The “Next Steps” document, also issued yesterday, addresses the issue of remedies to end the practice of fire and rehire and references future consultation on what role “interim relief could play in protecting workers in these situations” as well as consultation on whether the cap on Protective Award claims should be removed. Finally there is a concern employers may introduce wide variation clauses as a way to mitigate the effect of these new provisions that address fire and rehire. That potential loophole should be closed off.
Comments
The Employment Rights Bill is certainly an important step forward to address fire and rehire tactics. It will not eradicate the practice altogether, but it should significantly limit the circumstances in which it can be lawfully undertaken as the exception does appear narrow in nature. That is a positive step forward for trade unions and workers alike.