“Fire and Rehire”: A Tough New Regime

One of the most eye-catching proposals in the Employment Rights Bill 2024 (the Bill) is the proposal to outlaw “Fire and Rehire”. This is the practice of dismissing employees who will not accept a change of contract.

The employees are given a “take it or leave” choice on new terms. In extreme cases they are simply replaced by new workers on an inferior deal. In the notorious case of P&O, the workforce were fired and replaced by agency staff.

Key Legal Issues

Two main legal issues arise currently.

• Was there an unfair dismissal?
• Was there a breach of the obligations to consult collectively and notify the Secretary of State

To avoid unfair dismissal, employers need to follow a fair procedure, including consultation. They also need to show a substantial reason for insisting on the changes. A balancing exercise between the needs of the employer and the employee is carried out. But the key is whether dismissal is within a range of reasonable responses an employer might take, not whether the change is critical for the business to survive.

The duty to consult representatives applies with “fire and rehire” if there is a proposal to dismiss 20 or more at one “establishment” in 90 days. Consultation must take place for at least 30 days (or 45 if 100 plus) before the first dismissal takes place. Failure can mean compensation of up to 90 days’ pay per employee.

Code of Practice (the Code)

The P&O scandal prompted the previous Government to issue the Code. This finally came in July 2024. It states that dismissal and re-engagement should be treated as a “last resort”. The Code should be taken into account by a Tribunal. If a dismissal is found to be unfair compensation for can be uplifted.

BUT the Code does not change the test for fairness.

How will the law be toughened?

First, dismissals will be automatically unfair if the employer dismisses because:

• they sought to vary the contract and the employee refused, or
• they sought to sought to re-engage under a new contract or employ another person to carry out substantially the same duties.

Is there a defence? Yes, but it is much harder to establish. The change must be to remove or substantially reduce financial difficulties threatening the ability of the business as a “going concern” and not be reasonably avoidable.

Second, collective consultation obligations will be stronger. The “single establishment” rule loophole will go meaning numbers over different sites may add up to 20, triggering collective consultation obligations.  A change to the cap on compensation at 90 days is being considered but not currently in the Bill. Another change allowing for interim relief is also mooted: this can be a powerful tool leading to a possible order to keep the contract going till the full case is heard by an Employment Tribunal.

The final shape of changes to the law is subject to consultation but the changes will be significant.

Comments

The new law shifts the balance towards employees. It will certainly be hard for employers to meet the new bar to justify dismissals in most cases.

The new collective consultation rule closes one loophole but it remains to be seen what happens with the cap on compensation: the “rogue” employer may just factor the cost of compensation in its overall calculations.

Implementation of the new laws is likely in 2026 but the time is now to review and update your contracts of employment.