You're Fired! (and rehired)

There has been a lot of talk about dismissal and re-engagement (also known as “fire and rehire”) tactics lately.

We often advise employers who are looking to change employees’ terms and conditions. They could be looking to do this for a number of reasons, including economic circumstances or business reorganisation. We also advise employers on changing terms and conditions in the context of a TUPE transfer, but that is outside of the scope of this article.

If the terms you want to change are contractual, then you can face difficulties making changes if your employees are not in agreement. There are some options, but none are ideal:

1. If you go ahead and impose the changes, without the employees’ agreement, then the employees could resign and bring claims for constructive unfair dismissal. However, if an employee continues to work under the new changes without protest, then they could be found to have agreed to the changes.
2. You could look to ‘buy-off’ the changes by introducing them with some added benefit, such as a pay rise or bonus.
3. Alternatively, you could dismiss the employees who do not agree to the changes, but to reduce the risk of the employees bringing claims for unfair and wrongful dismissal, you should dismiss with notice (following consultation) and offer to rehire them immediately on the new terms. This is what has become known as fire and rehire. 

With all options, where more than 20 employees are affected, you should engage in collective consultation (see our previous articles here and here), otherwise you could be liable to pay a protective award of up to 90 days’ pay for each affected employee.

Fire and rehire is unpopular with many and, although such methods can be lawfully used in many cases, it is not without risk as Tesco recently found out.

The High Court recently granted an injunction, applied for by the trade union USDAW, preventing Tesco from firing staff and rehiring its employees on new terms.

Some years ago, when reorganising its distribution centres, Tesco negotiated “Retained Pay” for some of its warehouse operatives who agreed to relocate, as an alternative to redundancy. The Retained Pay was to remain for as long as the staff were employed in their current role and was described in communications to employees as being “guaranteed for life” and “permanent”.

Tesco announced in January 2021 that it was proposing to remove Retained Pay in return for a lump sum payment, and that if the employees did not agree they would be dismissed and offered re-engagement on new terms.

The union successfully obtained an injunction preventing Tesco from dismissing the affected employees.

Key to this particular case was that the Retained Pay was permanent for as long as the employee was employed by Tesco in their current role. The Court noted that Tesco could have put a longstop date on the entitlement to Retained Pay or made it clear that the entitlement to Retained Pay would only subsist for as long as the particular contract did, but they chose not to do so.

Although this was a rare and unusual case, the facts of which the Court described as “extreme”, the use of fire and rehire tactics has come under the spotlight recently, particularly due to the Covid pandemic (for example, “British Airways faces strike threat over job cut plan”, “British Gas staff start five-day strike in 'fire and rehire' row” and “…Duke of Edinburgh’s Award using fire and rehire…” ).

In 2021, ACAS were asked by the Department for Business, Energy and Industrial Strategy to investigate fire and rehire practices. The government has said that it does not intend to legislate to curtail fire and re-hire, and a private member’s bill aimed at limiting fire and rehire practices was blocked in October 2021. ACAS published updated guidance in November 2021, which stated that firing and rehiring should only be used as a last resort.

As the Court highlighted, Tesco could still terminate the employees’ contracts for good cause (for example if they are genuinely redundant or committed gross misconduct), which would end their entitlement to Retained Pay. However, Tesco will have to tread carefully if they do dismiss any of the affected employees for good cause, as they will be under scrutiny in light of what has happened so far.

The Tesco case is unusual, however all employers considering using dismissal and re-engagement to force contractual changes should be aware of the risk of reputational damage if things are not handled properly, and the risk of dismissed employees bringing claims. We recommend employers take timely advice in any case where they are considering making changes to employees’ contractual terms.

If you would like any further information or want to discuss any of these issues then please contact the writer, Marianne Wright, via mw@kilgannonlaw.co.uk or on 0330 124 7811.

Kilgannon & Partners LLP is a specialist employment law firm where our experienced employment law partners offer practical, prompt and professional employment law and HR advice.

23rd February 2022. © Kilgannon & Partners LLP