Fire-and-rehire: balancing business needs with legal risk

What is fire-and-rehire?

‘Accept these worse terms or lose your job’ – that is the crux of the fire-and-rehire strategy that some employers have turned to recently. In isolation and out of context, it’s an unpalatable concept. In fact, one trade union has labelled fire-and-rehire as ‘a dirty, bullying tactic used by unscrupulous bosses’. Boris Johnson has been a little more restrained, reportedly describing it as ‘unacceptable’.

Calls for its ban have yet to bring a positive result for campaigners, but high-profile businesses that have taken a fire-and-rehire approach have not gone under the radar. Their actions have been made public, and it’s up to people to decide for themselves whether forcing contractual changes through in this way is right or wrong.

Why employers use fire-and-rehire

Employees who are presented with fire-and-rehire as a fait accompli may, legitimately, feel they have no choice. It may seem utterly unfair for employees to face having their terms of employment downgraded. But, as this pandemic has shown, circumstances can also place employers in an invidious position. Those businesses we have advised on the issue have been desperate to avoid redundancies; they’ve wanted to retain their staff, even though that means asking people to work reduced hours or to accept a lower salary in order for jobs and the business to be kept alive. This situation is very different from that of profitable employers who use fire-and-rehire to become even richer.

That suggests there is room for exploitation of what can actually be a lawful option. Some employers will undoubtedly take advantage of their workers’ weaker bargaining positions in the current financial climate; they know staff will want to keep a secure job. And so there may be moral issues involved here too: do good employers really treat their employees in this way? As with so much in employment law, the ‘reasonable employer’ is at the heart of the arguments about fairness.

If an employer dismisses with impunity, it must be prepared to face the legal and reputational consequences of its unpopular – and sometimes unlawful – decisions. As employment lawyers, it is our job to help businesses balance their commercial needs and legal obligations, understand the risks, and take the best (occasionally ‘least bad’) steps in the circumstances.

The importance of consultation

Where you need employees to work on less favourable terms, it’s usually better to try to agree those changes with them. Simply altering their working hours or reducing their pay without agreement would breach the contract, entitling employees to resign and bring a constructive dismissal claim, depending on the severity of the change.

Proposed changes should be carefully considered and consulted on: do you really need to make them? How can you minimise their impact? How should you explain the situation to your employees? What will you do if your employees do not agree to the new terms? It’s important to involve employees as much as possible in the process and to take on board alternatives they propose. While time might not be on your side when it comes to alleviating financial or other practical pressures, do invest in proper consultation; it could make the difference between a smooth transition and a staff mutiny.

Usually, a fire-and-rehire strategy would be employed when all else has failed. It is a serious step to take because it means dismissing employees, even though you plan to re-employ them immediately. And with dismissal comes the risk of unfair dismissal (where an employee has at least two years’ service), as well as reputational damage. But it may be the right way to go where, despite your very best efforts, an employee simply will not compromise on their terms. If a claim is brought, demonstrating that you have been fair and reasonable all along will stand you in good stead.

We specialise in helping businesses with difficult practical and strategic issues involving their workforce. Contact us for advice on your situation, and we’ll guide you through it.