Up next in our ongoing series of articles offering further insight into what employers should expect from the Employment Bill is the changes expected to the practice of ‘firing and rehiring’ to bring about changes to the contracts of employment of existing employees.
‍

What does ‘Fire & Rehire’ mean?

‘Fire and rehire’ refers to the practice of changing employment terms and conditions by terminating existing employment contracts and re-engaging employees on new terms and conditions. 

The phrase is often also used to refer to the similar approach of ‘firing and replacing’ which occurs when an employer fires existing employees only to replace them with new staff on varied employment contracts (being the approach taken in the extreme case of P&O Ferries when they dismissed 800 members of staff and replaced them with low paid agency workers).
‍

What is the current position?

Although subject to increased scrutiny, the option of firing employees under their current contract of employment before reemploying them under new terms and conditions when efforts to agree changes through consultation is currently lawful.

Since July 2024 the practice of ‘firing and rehiring’ has been subject to a Statutory Code of Practice on Fire and Rehire (the Code), that seeks to ensure that dismissal and re-engagement or replacement is only used as a last resort. 

The Code underlines the obligation on employers to engage in meaningful consultations and to act fairly in negotiations over proposed changes to terms and conditions. Although the Code is not legally binding, any failure to adhere to it is admissible in any resultant employment tribunal proceedings and could result in an uplift in compensation awards by up to 25%.
‍

What will change under the Employment Rights Bill?

The Bill will significantly restrict the ability of employers to ‘fire and rehire’ employees to bring about changes to their contracts of employment.

The Bill will make it automatically unfair for an employer to dismiss an employee for refusing to agree to a variation of their terms and conditions of employment (or to replace an employee in such circumstances). The only exception to this being in cases where an employer can show that the variation could not reasonably avoided due to the genuine financial difficulties impacting their ability to carry on the business as a going concern. However, even then the employer must be in a position to show that the need to make the changes could not be reasonably to avoided and that they acted fairly in all the circumstance.

The Bill will therefore make it near impossible for employers to change employment terms and conditions without the consent of employees and recognised trade unions unless the situation is such that they would otherwise be considering redundancies and/or insolvency.
‍

How should employers prepare for this change?

We currently expect the proposed changes on ‘firing and rehiring’ to come into force in 2026. 

Employers should act now and review their current contractual terms to ensure they are fit for purpose and in line with best practice. If having performed a review of this nature its determined that changes are needed, then employers should adopt a variation process now while they are still able to do so.

An area for particular attention when reviewing contracts of employment will be the effectiveness of existing flexibility clauses. Most contracts of employment will already contain provisions that allow for some flexibility to make changes (commonly to pay, hours, benefits etc) without the need to obtain employee consent. However, going forward it will be of increased importance that such clauses are drafted to be effective as possible in order to protect an employer’s ability to make at least minor changes to terms and conditions that an employee may not otherwise consent to. 

Whilst it should be noted that existing case law has previously limited the scope and enforceability of flexibility clauses the introduction of the Bill will likely reopen this as the only option open to employers when more minor changes are needed that an employee is unwilling to accept.

FMGS are available to assist employers seeking to review their contracts of employment in advance of the introduction of the Employment Bill.

‍