The Employment Rights Bill and fire and rehire

The Employment Rights Bill published on 10 October 2024 includes strengthened provisions on fire and rehire as part of the Government's plan to address "one-sided flexibility" in employment relationships.

Current position

Dismissal and re-engagement, also known as fire and rehire, is the practice where an employer dismisses employees who have not agreed to changes to their terms and conditions of employment. After dismissal, the employer then offers to rehire the employees under new terms and conditions. Fire and rehire has been the subject of much media coverage lately – most of it negative, a sentiment echoed in the Government's own labelling of the practice as "the scourge of fire and rehire".

The Conservative Government introduced a statutory Code of Practice on dismissal and re-engagement on 18 July 2024. The Code aims to provide guidance on minimising conflict around the practice of fire and rehire, with an emphasis on information sharing and consultation. Currently the Code can be considered by a tribunal when assessing how reasonably an employer acted. Failure to follow it without adequate reason will not allow a free-standing claim but can result in a 25% increase in awards for certain tribunal claims including unfair dismissal. It is expected that from 20 January 2025 it will also be possible for a tribunal to adjust protective awards by up to 25% if a party unreasonably fails to comply with the Code. The Labour Government has criticised the Code as being inadequate, although it is unclear at this stage whether they plan to amend or replace it. 

The Bill: what will change?

Labour pledged in its 2024 election manifesto to bring an end to the practice of fire and rehire entirely. However, although it significantly restricts its use, the Bill does not go this far. It will be automatically unfair to dismiss an employee for either of the following reasons:

• The employer sought to vary the employee's contract of employment, and the employee did not agree to the variation;
• To enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out substantially the same duties as the employee carried out before being dismissed.

There will be a defence to 'automatic' unfair dismissal if the employer can show that they couldn't reasonably avoid the variation and it was for prescribed reasons (for example, to significantly reduce financial difficulties affecting the ability to carry on the business). Even if these conditions are met, there could still be a 'normal' unfair dismissal: the employer must demonstrate that the dismissal was fair in all the circumstances, considering factors including whether there was consultation and if anything was offered to the employee in return for agreeing to the variation.

Consultation on strengthened remedies

A consultation is running between 21 October and 2 December 2024 seeking views on the following:

• Whether an employee who makes a claim for unfair dismissal in a fire and rehire scenario should be able to make an application for interim relief to the employment tribunal. If an employee can demonstrate that their claim is 'likely' to succeed and their application for interim relief is successful, they would continue to receive their full salary and benefits until their unfair dismissal claim is heard. They would keep the payments even if they lost their claim.
• Increasing the maximum protective award that can be made by the employment tribunal for failure to comply with the obligations to collectively consult (which applies where an employer is proposing to dismiss and re-engage 20 or more employees from one establishment in a 90-day period). Two options are being considered: increasing the maximum protective award from 90 days' pay to 180 days' pay per employee or removing the cap altogether. The increased cap would not apply to insolvent businesses.

Impact on employers

The Bill will make it significantly harder for employers to make changes to terms and conditions of employment without individual or collective support. However, there may be some unintended consequences of the changes – for example businesses facing financial difficulties, but not to such an extent that they are able to rely on the limited exception to the automatic unfair dismissal provisions, may decide to make redundancies rather than trying to cut costs via changes to terms and conditions.

The new rules are unlikely to come into effect until 2026. In the meantime, employers wanting to use dismissal and re-engagement to vary terms and conditions should be mindful of the reputational risks currently associated with the practice and consider the guidance in the existing Code of Practice.

More information

For more information about anything discussed in this blog, please contact a member of the Brodies Employment and Immigration Team. Workbox by Brodies subscribers can access practical and up-to-date content to support them in managing the evolving HR and employment law landscape: see our HR to-do list and the dedicated pages on changing terms and conditions.