Changing Employment Contacts – Fire & Rehire

“Fire & rehire” is a term used when employers wish to change contracts or employment or working practices and cannot reach an agreement.

Employers often have employees engaged on a range of different employment contract terms and conditions. These various contract terms can make managing staff difficult. It can also lead to some staff feeling they are treated worse than other staff who might be on different benefits packages to the ones they are on.

Employers can also inherit staff who are on different terms and conditions when they buy other businesses or parts of businesses. Some contracts may have been negotiated against more or less favourable economic backgrounds or more or less favourable labour market conditions.

An employer can therefore have many reasons for wanting to change the terms and conditions of their employees. Sometimes the reason for wanting to change the terms is to harmonise them. Other times it is because the business is under some kind of pressure. It may have won a large order and need to change from a single shift system to a two or three shift system. Or, it may need to shrink its workforce, move location or modernise its working practises.

How it works at the moment

There are already a lot of rules on this topic. To summarise the current rules, if there is a substantial business reason to for them to do so, an employer can end contracts of employment and offer staff re-employment on alternative terms. The potentially fair reason for dismissal is called “Some Other Substantial (Business) Reason (SOSR)”. In order to rely on this as a reason for possible dismissal employers must have first gone through a fair process and also consulted with employees about the prospective changes.

In circumstances where 20 or more employees at any one establishment are affected then the employer must ensure that it consults in writing with appropriate representatives of those employees, which can include union representatives or elected or nominated representatives. Frequently there will also be direct consultation with employees. The consultation in these circumstances must last a minimum length of time, either 30 or 45 days.

Also under current rules, the employer should not consult against the background of an overt possibility that the employees may lose their jobs (be “fired”) in the first instance. If agreement cannot be reached then they may raise this possibility but only after they have made efforts to negotiate further to try to get to agreement.

The correct terminology is in fact: dismissal for “Some Other Substantial Reason”. However the emotive term “fire and rehire” is currently used to describe the process. The aversion to “fire & rehire” took hold after, by any standards, an appalling mass workforce firing by P&O.

Penalties

Currently if the employer gets it wrong the employee can sue for unfair dismissal. If the employer gets it very wrong, then they may also face penalties of up to 90 days gross pay per employee. In some circumstances that can be a double penalty of 180 days. In other circumstances, even if the employee says they agree to the changes, they can cherry pick and later say that they do not agree.

What actually tends to happen

I should add at this point that having assisted many employers to successfully change their employment contracts, including against a background of trade union involvement on consultations, not once has an employer in fact moved to dismiss its workforce for failing to agree to the proposed changes. In practice, firing and rehiring is often avoided and solutions are found.  If anything, and admittedly sometimes to the surprise of the employer, unions have congratulated them on a clear a successful process and management/workforce relationships have often improved through the process of engaging with representatives. Not all employers are baddies. More often than not there is considerable engagement and listening exercise undertaken and concessions made as part of the consultations.

A high bar

The proposed new rules on “Fire & Rehire” in the Employment Rights Bill are founded on a wish to end unscrupulous fire and rehire tactics that leave working people at the mercy of bullying threats. The recent Regulatory Policy Committee report confirmed the proposed new rules would all but prevent fire and rehire except where employers can meet the test in a narrow exception. The measures would have a huge impact on business flexibility. An employer’s dismissal and re-engagement or replacement on new terms if agreement is not reached would be an automatically unfair dismissal regardless of the employee’s length of service. The employer will need to evidence they were experiencing financial difficulties, the changes made to significantly mitigate or reduce those financial difficulties and the need to change the contract terms being unavoidable.  That looks like a high bar.

Protective awards

Subject to consultations, the protective award may increase from a maximum of 90 days gross pay per employee to 180 days gross pay per employee or the cap may be removed entirely. There will also be consultations on whether the minimum consultation period for larger collective (100 or more staff affected) contract changes should be changed to 90 days rather than 45 days.

Interim relief

Additionally, there are to be consultations about whether or not under the new laws employees should be able to obtain interim relief in these circumstances; specifically meaning that the employer would be injuncted from ending the employment and required to continue paying the employee’s wages until such time as the employment tribunal has dealt with the tribunal claim.

What next

In the event that the new rules become law, employment tribunals would be required to look beyond the usual fairness of the employer’s decision and its processes. It will have to consider what financial difficulties the employer would have faced. Potentially new territory for judges.

Some of these changes may be implemented quite quickly. Employers may need to quickly become much more skilled negotiators when it comes to discussing a business need to change contracts of employment.

Your strategy

Inevitably making changes to contracts and working practices takes time. The Government also intends to consult about the proposed new framework and there may be changes to the Bill before it becomes law. The burning question for employers is: do you have up to date contracts of employment in place? What do they say? Are they correct as at now? What changes might you need to make?  Can you make the changes now or will you take a more uncertain approach and “wait and see” what happens with the new laws? Going forward, almost all employers wish to make changes to terms and conditions at some point. What is your strategic plan going to be to get your business in shape before the new laws?