New Acas guidance on fire and rehire practices

On 22 October 2021, a private members bill, which intended to legislate against ‘fire and rehire’ practices, was blocked by MPs. Fire and rehire is a controversial tactic that can be used by employers who wish to change their employee’s contracts which are refused by the employee but introduced by dismissing (or firing) the employee and subsequently taking them back (or re-hiring them) on the new terms.

A spokesperson for the Prime Minister said that whilst the use of such tactics is “completely unacceptable, there is insufficient evidence to show legislation will stop the practice or be effective.” Instead, the Government asked that Acas provides more “comprehensive, clearer guidance to help all employers explore the options before considering fire and rehire.” This guidance was published on 12 November 2021.

Within the guidance, Acas suggests that the first step for employers, before proposing employment contract changes, is to consider the issue at hand and whether a contract change is needed to resolve it. This will help the employer clarify what it is that is trying to be achieved and the different ways that it could be achieved and in turn help with communication, which is key.

The guidance says that, when an employer is proposing to make changes to an employee’s contract, they must inform all those who are affected about:

• what the proposed changes are
• who might be affected
• why the changes may be needed
• the timeframe for the proposed changes
• any other options that have been considered

Employers should also consider whether trade unions need to be consulted on the above points. Providing this initial information allows employees to consider the potential changes and raise any concerns.

Consultation then needs to take place. The form of this will vary depending on the number of employees that are affected. In each case it should be a genuine two-way discussion about whether a change is needed and what kind of change is necessary. 

Employers should listen carefully to any suggestions and concerns as employees are much more likely to support changes if they understand the reasons behind them and have their opportunity to give their views on it, knowing that they will be genuinely considered and taken on board. As an employee, if you feel you are not being listened to and changes are being forced or threatened, you should make this known to your employer and/or seek trade union or legal advice.

If contract changes are agreed, it is good practice (if not always a legal requirement) to put them in writing but there is no need for a new contract to be produced. Any change to information in a section 1 statement of employment particulars must be updated in writing within one month of any changes taking effect.

The key messaging of the Acas guidance is that, although it may be time-consuming and difficult, attempts to reach agreement with employees should be explored for as long as is reasonably possible to try and reach agreement. This is beneficial all-round and reaching agreement avoids some potentially damaging and significant risks:

• legal claims
• damaged morale and good working relations
• strikes or other industrial action
• reputational damage

Fire and re-hire

If agreement cannot be reached, Acas deems fire and rehire practices as a last resort. Given the risks above, so do we!

Ending an employee’s contract of employment, even if you offer another contract on new terms, is a dismissal. The Acas guide reminds employers, in these circumstances, an employer must:

• have a fair reason for dismissal
• follow a fair dismissal process
• provide the correct amount of notice
• offer the employee the right of appeal against their dismissal

Failure to take these points into account could lead to a successful claim for unfair dismissal.

Any employer proposing to dismiss and rehire 20 or more employees must collectively consult on the proposed dismissals and this mean minimum periods of consultation and specific obligations to consult with representatives.

Initiating fire and rehire practices is likely to have an immediate effect on trust and working relations in an organisation, as essentially employees may feel that changes have been forced upon them and they have been given little choice. 

Additionally, fire and rehire may not prove successful. Employees may decide to leave once they are dismissed because they do not accept the offer of a new contract. They may leave shortly after and may be able bring claims of breach of contract/constructive dismissal (whether those claims are successful or not). 

There is also a risk of reputational damage, which may make it difficult to attract new employees and, if existing employees have left, the employer may find themselves in a difficult situation and back to “square one” and in what is already a tough recruitment market across many sectors.

It is uncertain whether the Government will reconsider the need to legislate on such practices, but the Acas guidance is clear in that fire and rehire should be very carefully considered as it is an extreme step and not without risk; although it does not condemn use of the practice all together. 

There is no specific penalty for non-compliance within the guide but non-compliance is something that an employment tribunal would take into account when weighing up any claim.

Due to the significant risks that can be associated with fire and rehire, if you are an employer considering changing employees’ contracts, it may help to obtain legal advice if negotiations are reaching a stalemate. We would be very pleased to guide you. Similarly, if you are an employee and your employer is attempting to obtain your agreement to employment changes, whether through consultation or fire and rehire and you have concerns about this, we would be very happy to support you if required. 

If you require any more information on this topic please contact a member of the Employment team.