18th January 2024
Dismissal and re-engagement (also known as ‘fire and rehire’) refers to when an employer terminates an existing employee’s contract and then rehires them on new terms. In most cases, the new terms are generally less favourable for the employee than under their previous contract of employment.
This is not a new strategy and has been around for a while in the world of employment. It is not an unlawful process, provided it is handled correctly and is typically used by employers as a last resort if changes to employment contracts are critical and voluntary agreement is not possible. Despite the process not being unlawful, it can be risky and difficult as any changes typically leave the employee being worse off than their previous employment.
Following questionable practice by some employers, the law surrounding the ‘fire and rehire’ process has been under investigation since last year with amendments looking to be made to the Statutory Code of Practice on Dismissal and Re-engagement. A formal version of the new law is expected to be implemented in Spring 2024.
Within the draft guidance, employers are encouraged to provide as much notice as possible of proposed changes within the contract of employment. Emphasis is also placed on the employer’s obligation to avoid using a threat of termination to pressure employees into accepting the new terms.
If an agreement of new terms cannot be met between the employer and employee after negotiation, the code states that the employer should re-examine its business strategy and plans to minimise the potentially serious consequences for employees. It is also stated that employers must consider the negative consequences of acting without agreement and whether there are alternative ways of achieving the same objectives.
If the employer decides to proceed with changes to the employees’ terms, the new code will encourage employers to be as transparent with employees and share as much information as possible regarding the new agreement. Any alternative proposals made by the employee should be considered and the employer needs to be prepared to consider other options and whether this will work for both the employee and the business’ needs.
It has been known for employers to use a threat of dismissal against employees to try and negotiate, when they are not in fact considering dismissal to achieve the desired outcome or objective. The code drives employers away from using this tactic but also recognises that an employer who has participated in a thorough and open information and consultation process, has listened carefully to and explored fully any alternative proposals, and has concluded that it still needs to make changes to employment contracts, might still need to consider dismissal and re-engagement strategy.
In cases where the dismissal and re-engagement process is used, employers need to give as much notice as possible and look at cases individually to ensure employees that may need a longer period of notice to accommodate the changes are considered. If employers do not comply with these changes, these claims will be admissible in evidence or employment tribunals and any provision of the code which is of relevance must be considered. A tribunal can increase any award it makes by up to 25% if the employer has unreasonably failed to comply with the code. It can also decrease any award by up to 25% where the employee has unreasonably failed to comply with the code.
We are highly experienced in this area of law and can support you in managing the risks and ensuring you are making the right choices whilst doing what’s best for your business. For further information, please contact Sarah Everton, Head of Employment Law, on 01782 577000 or email email@example.com.