Fire and rehire – what you need to know

By Donna Obstfeld on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

While negotiation should always be your first approach to changing the contractual terms of your staff, there are times when it doesn’t work.

In the most basic example, if you move offices, you need to consult with employees about the move and their new work location. If your employment contracts are properly written you will have a contractual right to change the work location for each employee, but in practice, that doesn’t mean that everyone can or wants to change location.

You need to consult with staff, and this may be individual or group consultation depending on the numbers involved. This consultation will need to lay out the business case for the move and all other factors which you have taken into account when considering the move. You need to allow sufficient time for a meaningful consultation, where you genuinely listen to the feedback from the affected employees and seek ways to avoid the need for the change, in this case an office move.

The impact on each employee needs to be carefully considered. It may be that one employee has a five-minute walk to work and that the office move will involve two buses with a journey time of over an hour for that employee.

It may be that you have a wheelchair-bound employee who is able to access the current building, but will be unable to reach or access the new building.

Alternatively, you may have a nursery very close to your current offices where several employees use the care provisions, but the new location does not have such a facility resulting in significant childcare challenges for employees.

Not wanting to move the to the new location is probably based on genuine issues, rather than a stubbornness and a desire to maintain the current status.

What choices do I have?

In this situation employers have two choices:

• Offer redundancy to employees who really can’t make the move
• Terminate the employment of those employees refusing to move and offer them a new contract with new terms and conditions, including the new office location

The employees also have choices:

• They could resign and walk away. This is most common where the changes to the contract are fair and reasonable and the employee just doesn’t want to accept the changes
• They accept redundancy and receive a proper payment (at or above statutory redundancy pay) as their job is genuinely redundant (at the old location) and the new job is in the new location which they can’t get to
• They accept the new contract on offer
• They bring a claim for constructive dismissal in the employment tribunal, either as an individual employee or as part of a group of employees, or via their representatives

Not all cases are as straightforward as a local office move.

One of the most talked about cases was P&O in March 2022. In this case 800 employees were sacked with no warning and no consultation. The company wanted immediate change and failed to follow any legal process.

What the draft fire and rehire statutory code says

In January 2023, partly in response to the P&O case, a draft code of practice on dismissal and re-engagement was released by the Department for Business, Energy and Industrial Strategy (BEIS). The date it takes effect is yet to be confirmed, but employers are now encouraged to behave as if it is already in place.

Like other codes of practice in the employment world, it sets out minimum standards of behaviour which employers are required to meet. You can have your own policies and procedures, but they must be in line with or in excess of the provisions of the code. Failure to comply with the code will be taken into account by an employment tribunal (ET) when considering any claims for unfair dismissal. If an employee (or group of employees) wins their case, there may be an uplift of up to 25 per cent applied to the award imposed against the employer.

The new code of practice (CoP) will require employers to take a business decision which takes into account the risk and impact of employees bringing a case against the employer for the change of contract. So when deciding whether to force the changes through with a dismiss and re-engage (fire and rehire) strategy, the costs of an employment tribunal, including the cost of defending the case, any awards against them, any costs awarded against them and the cost of time, stress and reputational damage must all be quantified in the business case to determine whether a fire and rehire approach still outweighs the cost of the changes required by the business which triggered the process in the first instance.

The CoP will also require employers to revisit their business strategy during the consultation process to determine whether the initial reasons for the changes are still relevant and whether they can be achieved in any other way so as to avoid a fire and rehire scenario.

Where significant changes are required or changes are required to multiple elements of the contract of employment, the CoP recommends that the changes are phased in over a period of time and are constantly kept under review to assess whether that change is still required given the impact of the initial changes or any changes in the environment – either internal to the business or externally in the economy for example.

Conflict around employment terms and conditions is never good for a business. It can result in poor retention rates, and this will always have a negative impact on your business. Seeking to resolve concerns and move the business forward in a positive way is always more conducive to business success. Consulting and negotiating with employees rather than adopting a fire and rehire approach will put your business in a stronger position.

How to avoid fire and rehire

So what other options are there?

Redundancy

An employer may seek to make roles redundant and follow a genuine, robust redundancy process giving employees the opportunity to apply for suitable alternative employment within the business if those roles exist. If the roles don’t exist, the employees are made redundant and paid redundancy pay in line with legislation.

An example of where this may be relevant is where a whole department is restructured, some roles disappear, others are created and headcount is decreased to achieve cost savings or greater operating efficiencies.

In a redundancy situation, the role is actually disappearing. Other people cannot be hired to do the role, otherwise it would not be a redundancy. Care must be taken to ensure that the new roles are significantly different from the old roles and require different experience/skillset.

Changes for new employees

In some cases, especially where there are no union negotiated contracts, it may be possible to bring new employees into a business on different terms and conditions to those the existing employees are on.

An example of where this has been used in the past is with pensions. Those employees on final salary schemes, kept their pensions, but new employees were brought into the business on defined contribution pension schemes, which are more affordable for businesses in the long term.

Other examples may include changes to holiday entitlement. New employees may come in on higher pay but with less annual leave entitlement.

In these scenarios, it may be worth offering the new terms to existing staff, but not forcing them to make the move from their current contract of employment. If they stay on their existing terms, this is known as ring-fencing.

Pro tip: One word of warning with this approach is the risk of age discrimination. It may be that your longer serving employees on “old” contracts have an age profile which is significantly older than your newer employees on your “new” contracts and therefore you may end up with an indirect discrimination claim as a result of this approach. This won’t always be the case, depending on your business and the demographics of your existing and new employees, but it is worth taking into consideration.

What else you should know about fire and rehire

The code applies to all business, regardless of the number of employees you have within the business. Even with just one employee, if you wish to make a change to their contract of employment, you must do so in-line with the provision of the CoP.

It is worth noting that the employment tribunal does not take the size of your business into account when making decisions or awards. If you are an employer, you must act as one, regardless of the size of your business.

The CoP also applies regardless of the objectives of your organisation or the reasons you are seeking the changes. Therefore, even if you are a charity or a not-for-profit business and are making the changes to increase your ability to deliver greater returns for your causes, you are still expected to fully comply with the CoP and your charity objectives are secondary to the rights of your employees.

The CoP applies regardless of whether you have a written contract of employment in place or not. Custom and practice will prevail. For example, if you have no contract in place (this is illegal and a subject for another article) and have always given someone unlimited holidays and you then document their terms and conditions as a contract and set a fixed number of holiday days, this could put you in breach of the CoP unless you have agreed with the employee (consulted, negotiated and agreed) what their holiday entitlement is going forward.

The CoP is not legally binding, but as already referenced, if someone brings a claim, it can be relied upon as evidence.

In some cases, where an employee has been unreasonable in their refusal to accept the new terms and conditions, and brings a claim against their employer i.e., for unfair dismissal, the ET may decrease any award against the employer by up to 25 per cent.

Hearts and minds

Changing terms and conditions of employment is hard, but not impossible. Communication and consultation are the heart of achieving a positive outcome for all parties. If, as an employer, you are able to bring the hearts and minds of your workforce with you as you evolve, change and modernise your business you will have a much more loyal workforce, who are engaged with your purpose and will always strive for business success.

Donna Obstfeld is founder and HR specialist at HR practice DOHR

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