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We look at the practice of firing and rehiring employees, whether it's legal and the risks of such a practice for employers.

The practice of ‘firing and re-hiring employees’ has been scrutinised recently. The General Secretary of the Trades Union Congress has said that the process has “no place in modern Britain and must be outlawed”, in light of employers, such as British Gas in April 2021, adopting such tactics during the Covid-19 pandemic.

Acas has produced a report on the use of ‘fire and re-hire’, which was received by the government in February 2021. The report has not yet been made public. The government is still considering its response to the report and has recently confirmed that it will set out its proposed next steps in due course.

This article explores whether imposing a ‘fire and re-hire’ scheme is legal, what effect it has on the employee and what risks it brings for the employer.

What is fire and re-hire?

When employers seek to ‘fire and re-hire’ employees, the underlying desire is typically to achieve a variation of the terms of an employee’s contract of employment, usually to the detriment of the employee.

It is quite common for employers to want to vary contract terms. Employers frequently look to change terms such as hours worked, rates of pay or the place of work due to business requirements.

An employer can vary terms and conditions of an employment contract if:

  • the contract allows for the change (if the contract contains a ‘flexibility clause’);
  • the employee agrees to the change; or
  • the employee’s representatives agree to the change (for example, a trade union).

If none of these circumstances arise, then an employer is legally permitted to force a variation through the process of ‘firing and re-hiring’ the employee; whereby the employer gives notice of termination of the current contract, together with an offer of a new contract, which contains the varied terms and conditions, to start immediately after the original contract has been terminated. However, Acas guidance provides that this should be seen as a last resort.

How to change an employment contract

The safest way for an employer to vary contract terms is to consult with the employee and obtain their agreement. An employee is more likely to agree to a variation if the changes, and the reasons behind them, have been fully explained.

Even if the contract contains a ‘flexibility clause’, an employer should exercise the right to unilaterally vary contract terms carefully, ensuring that the changes are implemented so as not to breach the implied term of trust and confidence. There is a risk that if a unilateral variation of the contract is not carried out reasonably, it could result in the employee resigning and claiming constructive dismissal.

Fair dismissal procedure

If an employer has decided to dismiss and subsequently re-engage an employee, it should be cautious in following a fair dismissal procedure. This includes providing the employee with the correct notice period and offering a right of appeal against the dismissal. The employer should ensure that the changes do not take place until the employee has been fairly dismissed and subsequently re-hired under the new contract. If the employee feels like a fair process has not been followed, they might be able to make a claim to an employment tribunal for unfair dismissal, wrongful dismissal or a breach of contract, depending on the circumstances.

Aside from the risk of legal action, adopting an approach of firing and re-hiring to an employee’s detriment also brings a risk to employee engagement and morale, especially if employees have not been properly consulted throughout the process. Furthermore, it could cause reputational damage in the current climate.

By way of summary, the practice of ‘firing and re-hiring’ is legal provided that it is carried out in the correct way, however, even then, it can bring risks. 

For further guidance and support on any employment or HR issues, contact our employment lawyers.