The Employment Rights Bill, which is making its way through Parliament, is set to impose strict limits on how and when employers can 'fire & rehire' workers under revised terms and conditions of employment. These changes could take effect as soon as October 2025, ushering in a new era for workplace relations.
Given this, it is essential that employers understand and prepare for these changes, to avoid the legal repercussions arising out of non-compliance.
Understanding ‘Fire & Rehire’ and Its Evolution
Traditionally, ‘fire & rehire’ has served as a means for employers to force through changes to workers employment contracts unilaterally when agreement couldn’t be reached through negotiation. By dismissing employees and offering them re-engagement on new terms and conditions of employment, businesses could unilaterally alter their staffs contractual conditions - often in response to economic pressures or strategic shifts.
However, this approach has come under increasing scrutiny. Recent high-profile incidents involving companies like P&O Ferries have thrust the practice into the public eye, drawing criticism from media, unions, and the wider community. Many now see ‘fire & rehire’ as an unethical manoeuvre that undermines employee rights and damages corporate reputations.
What Will Change Under the Employment Rights Bill?
The Employment Rights Bill represents a decisive shift in how contract changes can be implemented. Once enacted, it will offer employees robust protections against being dismissed for refusing to accept new contractual terms. Specifically, terminating an employee simply for not agreeing to altered terms will constitute automatically unfair dismissal.
This legislative overhaul means that employers will no longer have free rein to force through changes without consequence. Instead, workers will gain greater leverage to challenge any modifications they believe are unjustified or detrimental.
Limited Exception: When Is ‘Fire & Rehire’ Still Permitted?
Even with the stricter regulations, employers can still pursue the option of 'Fire & Rehire if they can unequivocally show that:
- Adjusting the terms of the contract is crucial to preventing or alleviating financial challenges that could jeopardise the survival of the business (i.e. to avoid insolvency)
- There is no viable alternative.
This exemption is designed to apply only in exceptional circumstances, such as when there is a genuine risk of insolvency and all other avenues have been exhausted. Employers seeking to rely on this exemption will need to provide strong supporting evidence and demonstrate that a thorough consultation process has been gone through.
Statutory Code of Practice
A new statutory Code of Practice will provide guidance for managing contract alterations. Whilst not legally binding, the extent to which the Code has been complied with will be factored in during tribunal assessments, with potential penalties for non-compliance. Given this, employers will need to integrate the Code into their internal procedures to avoid the inevitable legal repercussions arising out of non-compliance.
Dangers of Attempting to Bypass New Regulations
Any attempt to get around the new fire & rehire rules carries substantial risks:
Reputational Harm: Attempts to sidestep regulations can quickly become public knowledge, leading to negative press coverage, loss of consumer trust, and lasting harm to the employer's brand.
Non-Compliance With Code: Breaches of the Code could result in penalties being imposed by the employment tribunal
Concocted Redundancies: Engineering redundancies solely as a pretext for changing employment contracts may result in findings of unfair dismissal.
Increased Union Activity: Bypassing fair processes is likely to galvanise union opposition, resulting in collective grievances, strikes, or other forms of industrial unrest that disrupt business operations.
Abusing Variation Clauses: Utilising pre-existing variation clauses within employment contracts are unlikely to succeed if used unilaterally to place employees at a disadvantage
Loss of Employee Morale and Retention: Perceived unfairness in contract changes can erode morale, increase turnover rates, and make it harder to attract talent in a competitive labour market.
Agency Staff Replacement: Replacing dismissed workers with agency staff could well represent a breach of the TUPE regulations and could provoke strikes / industrial unrest
Increased Scrutiny, Formal Investigations, & Government Intervention: Circumventing the law in relation to 'fire & rehire' could prompt increased scrutiny of the business, investigations by regulators, and even intervention by the Government - not just in relation to this issue, but in relation to other matters as well
Personal Liability for Directors: In cases of deliberate non-compliance or bad faith actions re 'fire & rehire', company directors may be held personally liable for certain breaches under employment law or company law provisions.
What Should Employers Do Now?
Given the changes regarding 'fire & rehire', employers should:
- Update Employment Contracts and Policies: Ensure all employment contracts and HR policies reflect the new legal requirements to avoid any non-compliance issues.
- Revise Consultation Procedures: Enhance and formalise consultation procedures to ensure thorough engagement with employees before proposing any changes to their terms of employment.
- Develop Alternative Methods for Implementing Change: Focus on collaborative approaches that avoid unilateral contract alterations, such as negotiating mutually acceptable modifications directly with employees or their representatives.
- Train Staff on New Regulations: Provide comprehensive training for managers and HR personnel on the changes to 'fire & rehire' practices to ensure they understand and comply with the new legal framework.
- Conduct Regular Legal Audits: Periodically review and audit employment practices to ensure ongoing compliance with the latest employment laws and regulations.
- Strengthen Communication Channels: Establish clear and open lines of communication with employees to foster trust and transparency, making it easier to manage changes collaboratively.
- Engage in Early Conflict Resolution: Implement mechanisms for early resolution of disputes related to contract changes, thereby reducing the risk of litigation or industrial action.
- Leverage Employee Feedback: Regularly seek feedback from employees on proposed changes to better understand their concerns and gain their buy-in.
- Monitor Industry Best Practices: Stay informed about industry standards and best practices related to employment contract modifications, ensuring your policies remain competitive and fair.
- Seek Legal Advice When Necessary: Consult with legal experts when planning significant changes to employment terms to navigate complex situations correctly and mitigate potential risks.
Looking Ahead
As businesses navigate the evolving landscape on fire & rehire shaped by the Employment Rights Bill, it is imperative to embrace a collaborative approach to change. By fostering open dialogue and prioritising employee engagement, companies can build trust and ensure smoother transitions. This shift not only protects workers' rights but also strengthens organisational resilience and reputation.
HR professionals and employers should focus on proactive strategy development, integrating robust consultation processes, and exploring alternative solutions before resorting to contractual modifications. Training and awareness initiatives will be crucial in equipping management with the necessary skills to handle these changes effectively.
For more on navigating the changes in relation to 'fire & rehire', watch our youtube video
