Employment Rights Bill bitesize: fire and rehire 

The Employment Rights Bill was published on 10 October 2024, setting out a wide range of ambitious workplace reforms. For an overview of the Bill, see our ‘headlines’ article. 

In this series of ‘bitesize’ articles, we look at different key provisions of the Bill in more detail, consider the implications for employers and explain what the next steps will be. 

Fire and rehire: what does the Bill say? 

The concept of ‘fire and rehire’ came into the limelight in recent years following a number of high-profile cases (including the dismissal of P&O seafarers in 2022). More correctly referred to as ‘dismissal and re-engagement’, it is the legal mechanism which enables an employer to force through a change to an employee’s terms and conditions if they have not consented to the change. The Bill proposes to make it automatically unfair to dismiss an employee if they refuse to agree to a variation of their contract. It also makes it unlawful to recruit a new employee (or rehire the same employee) on worse terms but with substantially the same duties.  

These dismissals will be unfair unless the employer can show that they were facing financial difficulties which threatened their viability, the changes were to mitigate the effects of those financial difficulties, and varying the contract could not reasonably have been avoided. This limited exception makes it clear that a dismissal in these circumstances needs to be a ‘last resort’ option, rather than ‘within a range of reasonable responses’ as the law currently stands.  

Even if an employer can satisfy this exception, the Tribunal will still need to assess whether the dismissal was fair by considering whether appropriate consultation was carried out in advance and whether anything was offered to the employee in return for their agreement to the variation.  

The Government has published a separate factsheet summarising its proposals in relation to ‘fire and rehire’. 

What does this mean for employers? 

This aspect of the Bill is likely to make it more difficult for employers to vary contracts without an employee’s express agreement. Genuine business reasons for a restructure or for changing contractual terms will no longer suffice, unless the employer is also facing ‘financial difficulties’. What this means is currently unknown, and details of the proposals will be consulted on.  

Employers may still be able to rely on widely drafted variation clauses in contracts of employment, as the employee’s agreement is then implied within the contract. However, these must be treated with caution. In any event, employers should carefully consult and offer something in return for the employee’s agreement to the change rather than unilaterally changing the contract.

Further, employers will have to remain mindful of the way they treat employees if they wish to vary contracts. Even if they are in ‘financial difficulties’, employers will still need to follow the Statutory Code of Practice on dismissal and re-engagement which came in force on 18 July 2024. The Code provides guidance on the consultation and detailed process that employers should follow if they wish to resort to fire and rehire. Unreasonable failure to follow the Code can result in an uplift of up to 25% on top of compensation for unfair dismissal.

What are the next steps?

The Government has already issued a new consultation on certain aspects of its proposals relating to fire and rehire, which closes on 2 December 2024. It is seeking views on whether the remedy of interim relief, which enables a claimant’s employment to be continued until the case is determined, should be extended to claims for automatic unfair dismissal involving dismissal and re-engagement.

Further consultation on implementing regulations is also anticipated in early 2025. The reforms are unlikely to come into force until 2026.  

Ahead of these changes, employers should be reviewing their policies, contracts of employment and internal procedures and consider very carefully, before pursuing a fire and rehire strategy, how they may be able to meet the higher legal threshold. Any new contracts of employment should be drafted widely and carefully with the proposed changes in mind.