Following the highly publicised mass dismissal of P&O employees in early 2022, ‘fire and re-hire’ has become an emotive topic and Labour made it part of their manifesto pledge to end unscrupulous fire and rehire tactics and to strengthen collective redundancy rights. That pledge has been unequivocally fulfilled in the provisions of the Employment Rights Bill.

Fire and re-hire

Currently, employers are permitted to dismiss employees who refuse to agree to a change in their contract and offer them immediate re-engagement under a new contract to effect the change. Although uncommon, the threat of ‘fire and rehire’ can be a tactic used by employers to ensure employees agree to necessary changes in their contract.  Dismissals because of a refusal to agree to a change to terms will be fair for ‘some other substantial reason’ provided the employer can demonstrate they have a sound business reason for seeking to change the contract and they have followed a fair process, including consulting and considering alternative options.

The current approach is supported by a statutory Code of Practice, published in July this year, which sets out the minimum requirements for a fair process in these circumstances.

Reform

The Employment Rights Bill makes a significant change to this approach.  Where an employee is dismissed for failing to agree to a change in their contract, or if the employer dismisses an employee to replace or re-engage them on varied contractual terms, that dismissal will be treated as automatically unfair unless:

• the employer can evidence financial difficulties that were affecting, or were likely in the immediate future to affect, the viability of the business as a going concern
• the reason for making the change was to eliminate, prevent, significantly reduce or significantly mitigate the effect of those financial difficulties, and

• the need to make the change in contractual terms was unavoidable.

Even where the employer meets that test, an employment tribunal will still assess whether the dismissal was carried out fairly.  Relevant factors will include:

• whether the employer consulted with the employee, trade union or other employee representatives, and
• whether the employer offered the employee anything in return for agreeing to a variation to their contract.

Comment

The Bill imposes a high threshold on employers wishing to force through changes to contractual terms. Effectively, it will be unfair to dismiss in these circumstances unless the employer’s business is in dire financial straits.

It is worth noting that the new ‘automatically unfair’ reason covers not just employees who are dismissed because of a refusal to sign up to new terms,  but also employees who are dismissed and replaced with someone else who is willing to carry out the same or a substantially similar role on the varied terms.

Collective redundancies

When it comes to collective redundancy rights, the current position is that employers must inform and consult with trade unions or employee representatives if they propose to dismiss 20 or more employees because of redundancy at one establishment in a 90 day period.

The Employment Rights Bill removes the words “at one establishment” from the equation, meaning that employers who make a small number of redundancies at each of a number of sites or units, but where the total number of redundancies is 20 or more, will find themselves having to inform and consult about those redundancies where currently they don’t have to.

For more information about this, please contact Fiona Hamor: fiona.hamor@pannonecorporate.com