The end of ‘fire and rehire’?

With the introduction of the Employment Rights Bill, could we see the end of the ‘fire and rehire’ practice?

Broadly, yes – although we won’t see anything soon as the Bill isn’t due to come into effect until around 2026.

What is ‘fire and rehire’?

Fire and rehire, also known as dismissal and re-engagement, is a practice used by employers whereby an employer dismisses an employee, only to then re-hire them, often on less favourable contractual terms.

This practice is commonly used when employers want to vary an employee’s contractual terms but cannot get full employee co-operation. In those circumstances, an employer can either unilaterally impose the change, which carries the greatest risk, or terminate the existing contract and then re-employ the employee on the new terms and conditions – namely, fire and re-hire.

Generally speaking, employers can justify the latter action by relying on a sound business reason for needing to implement the variation, such as responding to economic changes, changing working practices or harmonising terms and conditions.

What does the Bill do?

The new Bill will make it unlawful to dismiss an employee if the principal reason for the dismissal is either:

1. That the employee refused to agree to a variation of contract sought by the employer
2. To enable the employer to recruit another person – or rehire the employee – under new terms, but with substantially the same duties.

This essentially means that the practice of fire and rehire will be unlawful, save for the very limited exceptions below.

For a dismissal to be lawful, employers will need to show that the variation was necessary to significantly mitigate any financial difficulties which would affect the employer’s ability to carry on its business and that the employer could not reasonably have avoided the need to make the variation to the contract. The defence is narrow and will be difficult to run.

The tribunal will also take into account the extent of any consultation carried out with the employee and anything that the employer has offered the employee in return for agreeing to any proposed variation.

What do employers need to do?

The Bill is not anticipated to come into effect until 2026, so there is no immediate action to be taken. However, it would be wise for employers to start thinking about their existing practices now and the options available to them should they wish to implement a contractual variation under current practices, as set out in the “what is fire and rehire?” section above.

Employers should also bear in mind that failure to manage any change in contracts correctly can lead to issues within the workplace, including damage to relationships and an increased level of absence and reputational damage, so it is important to assess the situation and any potential issues that may arise.

The government has launched a consultation paper seeking views as to whether interim relief should be available to employees, where they bring a claim under the new provisions – once they come into effect – so we will also need to keep an eye on this as this would have financial ramifications for employers.

It might be that employers also need to tighten the variation clauses within their contracts of employment, but more to come on that as the Bill progresses.