Workforce Matters  The Employment Rights Bill: The end of fire and rehire?

Fire and rehire refers to the practice of employers dismissing employees and offering them new contracts on less favourable terms. Although P&O Ferries did not use a straightforward fire and rehire strategy, because it used agency staff to replace sacked staff, the tactics used were similar enough to draw enough political pressure for the government to announce a ‘crackdown’ on fire and rehire.

The Conservative government responded by introducing a statutory Code of Practice on dismissal and re-engagement, which came into effect in July 2024. The Code sets out employers’ responsibilities when seeking to change contractual terms and conditions of employment and seeks to ensure dismissal and re-engagement is only used as a last resort.

The Code didn’t introduce any new binding legal obligations on employers but is admissible in evidence in legal proceedings. As such, it gave employment tribunals the power to apply an uplift of 25% to an employee’s compensation if an employer unreasonably fails to comply with the code.

One step further

The Code was criticised by the Labour Party as not going far enough to end the practice, and in its 2024 manifesto the Party committed to outlawing fire and rehire completely.

The Employment Rights Bill, which is now at the end of its passage through the Lords and is expected to become law later this year, makes dismissals automatically unfair if they are done to impose new contractual terms or replace employees with others on different terms.

There are, however, limited exceptions where employers can demonstrate financial distress and that the changes were unavoidable.

An IoD survey in April 2024 found that six in 10 (61%) business leaders agreed with Labour’s proposal to outlaw fire and rehire. Indeed, it is the only policy from Labour’s wider Make Work Pay package which IoD research has found that more than half of business leaders support. For many in the business community, the damage done by fire and rehire practices to the public trust in business outweighs any economic utility of the measure.

So what is the issue?

Given that a majority of business leaders are in favour of outlawing the practice completely, the Bill’s provisions on fire and rehire are one of the less contentious areas of the Bill. However, the way in which the Bill originally ‘banned’ the practice threatened serious unintended consequences.

The version of the Bill which left the Commons made dismissal for failing to agree to any variation in contract automatically unfair in all but the most extreme situations. This could have led to bizarre scenarios in which employers could not be sure of their ability to make non-detrimental, routine changes to contracts, such as evolving role descriptions or changing office locations. The consequences of such an approach on business’ ability to innovate would have been severe.

After months of the IoD and other business groups raising the alarm about the harmful consequences of such an approach, amendments have been added in the House of Lords to restrict the provision to ‘restricted variations’ to employment contracts. ‘Restricted variations’ are defined as any of eight detrimental changes to terms including pay, hours, and leave entitlements.

What next?

The Bill will now be sent back to the Commons, and some parliamentary ‘ping pong’ between MPs and Lords is likely to follow.

Business will be hoping that MPs accept the sensible amendments to the Bill’s fire and rehire provisions added by the Lords. Doing so would outlaw fire and rehire in all cases except where, effectively, the firm would otherwise go under, whilst avoiding creating a damaging situation in which employers are unable to make non-detrimental changes to employment contracts.