Changes to ‘fire and rehire’ must not be dismissed by employers

If the Bill comes into force as is, employers retain the right to use dismissal and re-engagement, albeit in severely limited circumstances. This will be following meaningful employee consultation building on the direction of travel set by the ACAS statutory code introduced in July 2024.

Employment tribunals already have the power to apply a 25% increase in awards for certain legal claims where an employer unreasonably fails to comply with the code.

In theory, the changes proposed under the Bill are to end ‘the scourge of fire and rehire’ referred to in the UK Government’s Next Steps paper. However, as with most legal matters, the reality will bring nuances which make things less straightforward.

For instance, any dismissal because of an employee failing to agree a change in contract, will be treated as an automatic unfair dismissal – unless the organisation can evidence financial difficulties that necessitate the contractual changes and would otherwise impact the employer’s ability to carry on their activities.

Steps employers must take

Also, the employer must be able to demonstrate that they could not reasonably have avoided the need to make the variation.

As well as increasing scope for legal proceedings – the Bill removes the two-year qualifying period for general unfair dismissal claims – it also brings a new level of scrutiny. Indeed, it could necessitate involving financial experts at the consultation or tribunal stages, in order to explore the extent of the employer’s financial difficulties, and other potential ways to improve that without the variation.

The untested extent of these restrictions could have unintended consequences, as employers look to restructure via routes they already know how to navigate from a legal standpoint, such as redundancies or outsourcing ancillary services.

We could also see an increase in fixed term and temporary contracts or the inadvertent creation of a two-tier workforce, as employers keep existing employees on original contracts and hire new employees on their preferred new terms and conditions.

The robustness of internal employee consultation processes must be addressed by employers if they don’t already have adequate systems in place. This might be particularly true for SMEs and employers in the private sector, who are less likely to have existing arrangements in place with trade unions or other internal employee consultation bodies.

Striking a balance

These processes should allow the employee voice to be heard, and employers may need to share financial information that they would otherwise have been reluctant to share. That may be a difficult balance to strike, especially where the employer considers such information to be commercially sensitive.

To seek to avoid fire and rehire, employers could take time to review their flexibility clauses within employment contracts – in line with existing case law of course. More specific and detailed flexibility clauses are easier to enforce.

However, this does require a degree of horizon scanning, and the clauses must still be exercised in a fair and reasonable manner by employers.

Given the financial scrutiny that will be placed on employers looking to fire and rehire, businesses will have to think more holistically and consider being more open and transparent with employees and unions to build trust through such periods of consultation.

While proposed restrictions aren’t planned to come into force until 2026 – and could still be amended along the way – businesses that wish to remain on the front foot from a legal standpoint should begin to prepare now for the changes ahead.

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