Fire and rehire – a guide for employers

In February 2024, the government published an updated code of practice (‘the code’) addressing the process of dismissal and re-engagement, more commonly known as fire and rehire, of employees. This builds on the code previously published in January 2023, which emphasised the need for the employer to negotiate this process in good faith and with adequate consultation for the employees affected.

The latest guidance tweaks the obligations on the employer and broadens the procedural requirements for an employer seeking to fire and rehire. The government have committed to bringing the code into force by July 2024 subject to parliamentary approval. The implementation of the code reinforces the need for employers to ensure they tread with caution when changing terms and conditions of contracts of employment.

This article explains the practice of ‘fire and rehire’, the potential consequences for failing to comply with the updated code of practice and highlights the key takeaways for employers.

What is fire and rehire?

Fire and rehire refers to the situation when employers wish to change the terms and conditions of their employees’ contracts. This may address conditions such as pay, working hours or holiday allowance. A contract of employment cannot be amended without the consent of the employee. But there are situations where changes need to be made for operational or financial reasons.

These changes may not be attractive to the employee but rejection of them can leave the employer in a difficult position. If the employee continues to reject the new proposed terms, an employer may feel it necessary to dismiss an employee on notice and rehire them with the new terms and conditions in place. This can leave an employee with a choice of accepting new working conditions or losing their job.

This approach does not come without risk for the employer. Specifically, the employee may claim unfair dismissal as a result of their dismissal or constructive unfair dismissal if there has been a fundamental breach of the contract of employment.

How is the code of practice relevant?

The code is aimed at establishing a process for negotiating and implementing new terms and conditions in good faith. This is separate from existing obligations around procedure and compliance and looks to add to the existing protections for employees.

The process of fire and rehire is not illegal, despite commitments form Labour, the Scottish National Party and the Liberal Democrats to ban this, and a failure to comply with the code does not grant an employee a right to bring a claim. The code also has no impact on existing legal obligations.

However, there are potential cost consequences for failing to comply with the code and tribunals will have the ability to an apply an enhancement of up to 25% on an award made against the employer. Alternatively, this can be deducted from any compensation awarded to the employee where they have unreasonably failed to comply with the code. There may also be implications around reputational damages and this process can increase the risk of industrial action.

January 2023:

The original code published in January 2023 made the following recommendations for the process of fire and rehire:

If agreement cannot be reached as to the new terms and conditions, the employer should re-examine its business strategy.
Consultation should take place in good faith throughout and is viewed as an ongoing process. This applies irrespective of whether agreement is likely to be reached.
Information should be shared in as much detail and as early as possible during the process. While the content of information will be dependent upon the employee, the code gives examples of the business reasons for the change, the benefits of this and the anticipated timings.
Fire and rehire should only be used as a last resort.
The code will apply regardless of the number of employees affected.

February 2024:

Following a period of consultation, the government published an updated code in February 2024. The following additions/changes were made to the code:

For any changes that are agreed, it is good practice for the employer to communicate this in writing.
The code does not apply where redundancy is provided as the only reason for dismissal but will apply where this is considered alongside fire and rehire.
Employers should not use undue pressure to threaten dismissal where this is not actually envisaged.
There is no time requirement given for the length of consultation save that this should now be ‘as long as reasonably possible in good faith.’
Employers are now required to contact Acas for advice before raising the prospect of fire and rehire. This has been changed from the requirement to contact Acas, the Advisory, Conciliation and Arbitration Service, if agreement could not be reached.

Key takeaways for employers

As mentioned, the code does not create new legal obligations or provide a route of enforcement in itself. It is also not expected that the code will impact any existing legal obligations. For example, it is unlikely that an employee would be considered to have their years of service reset to zero following the fire and rehire process. In practice, this would undermine the rights of the employee which the code is seeking to protect.

While the code references the possibility of an employee having their award reduced by for failing to comply with the guidance, the overarching provisions offer greater protections for employees and the likelihood is that any impact on damages is likely to be in the employees’ favour.

For some employers, the updates to the code will not lead to significant changes and for those already committed to negotiating in good faith, the code may simply provide a more universal procedure. This should bring the benefit of consistency and predictability with the threat of costs implications for failing to comply. That being said, it is less likely that the code will tackle fire and rehire negotiations which have become hostile save for being used as an additional ground of argument for cost awards.

If you have any queries or would like to know more please contact the employment team.