Is it really the end of fire and rehire?

The new Labour Government has announced a raft of new employment rights legislation, due to be passed over the next few months. The vast package will reportedly cover everything from zero-hours contracts to trade union rights and redundancy laws. 

One of the most eye-catching of these proposals is the ban on so-called ‘fire and rehire’. This is a controversial practice that companies sometimes use to impose new employment terms on their workers. 

Fire and rehire practices are generally quite unpopular and few will mourn their passing. But for employers and HR teams, there are a number of key questions the changes raise. 

Here, we discuss what we know so far and answer as many questions as we can at this early stage.

What is fire and rehire - why do employers use it?

‘Fire and rehire’ is when a business formally ends an employment contract and offers to rehire the same employee on new terms. Often, this new contract would come with lower pay, fewer benefits or reduced hours. Employers use fire and rehire so they don’t have to agree new terms with each employee – which would normally be a prerequisite for changing contractual terms. 

This practice has been unpopular for some time, because it’s often used to weaken the employees’ benefits or rights without them having a choice in the matter. When fire and rehire is used, the employee has to either agree to the new terms or find a new job. 

Fire and rehire practices became particularly prominent during Covid – as the sudden loss of business meant employers around the world had some difficult decisions to make. 

One particularly notorious example was P&O Ferries – where 800 employees were sacked on Zoom without notice. Since then, ‘fire and rehire’ has become a byword for unscrupulous bosses playing hard and fast with employee’s rights. 

But not all cases of fire and rehire are like P&O. It's a way for companies to shift away from benefit packages that worked well for a small team - but became harder to maintain as the company grew.

“Fire and rehire is never ideal – but sometimes it’s more justifiable than others. I once advised a restaurant client who needed to move from an outdated and unsustainable tipping allocation model to the industry-recognised TRONC system.

This wasn’t about taking money from employees, it was just about moving to a more sustainable system. All employees agreed except one, and we had to engage in fire and rehire for that one person. A lot of fire and rehires are similar to this. Nonetheless, it should always be used as a last resort.”

-  Alison King CIPD, Managing Director at Bespoke HR

The Government’s proposals aren’t the first changes we’ve seen to fire and rehire recently. In fact, the previous Government updated the code of practice only this year, with changes coming into force just a few months back. 

In practice, however, these changes weren’t extensive and don’t come close to the all-out ban that Labour proposes. The change was mostly focused on raising the penalty for fire and hire malpractice, rather than reducing the fundamental legality of it in the first place.

The fire and rehire ban: What changes are being proposed?

The fire and rehire ban will be included in a package of employment rights legislation that’s due to be introduced within 100 days of the Government taking office. This would take us to early October.

At this stage, however, there are fewer details about the bill than we’d like. Despite referring to the law as an outright ban, the Labour Party has suggested that fire and rehire will still be possible in some situations – principally when companies have no other option. 

This suggests that, in fact, fire and rehire will continue in some form – albeit with much higher legal hurdles to jump. Unfortunately, there aren’t enough details at this stage to be sure either way.

“It is important that businesses can restructure to remain viable, to preserve their workforce and the company when there is genuiely no alternative, but this must follow a proper process based on dialogue and common understanding between employers and workers."

-  Labour's Plan to Make Work Pay

Nonetheless, it looks likely that more details will emerge in the next few weeks – and we’ll be sure to share them on the Breathe blog once they do.

What are the alternatives to fire and rehire?

Few companies want to engage in a fire and rehire process. It’s unpopular among both employees and customers - and carries a significant risk of reputational damage. Ultimately, nobody wants to be the next P&O. 

But sometimes, businesses have to make tough decisions – and this was particularly the case during the volatile Covid years. If companies are considering fire and rehire, they’re often comparing it against several alternatives that are just as unpalatable.

“When I’m consulting with clients on fire and rehire, I always advise that it should be a last-resort solution. Even if you manage to avoid going to tribunal, the reputational damage among employees and customers means it’s rarely worth it.

Generally, at this point, we’re looking at multiple options including redundancy, phasing in new benefits, voluntary pay cuts and consulting with employees.”

-  Alison King CIPD, Managing Director at Bespoke HR

Nonetheless, it looks like these alternatives will be the only options available to businesses if the law does indeed become an outright ban. But even if the practice remains in some form, employers should always consider other options before going down this road.

5 alternatives to consider instead of fire and rehire

• Simply ask - Consulting with employees about the options on the table is always the best place to start. Often, contractual arrangements can be agreed by mutual consent, which is always better for morale and reputation than fire and rehire. Companies can also consider offering other benefits in return for agreement, such as remote working.
• Redundancy - Often, businesses turn to fire and rehire as the only alternative to redundancy. However, sometimes it may be wiser to consider the redundancy route instead. Some employees may take voluntary redundancies. Otherwise, it may be easier to make one or two employees redundant than to impose new terms on the whole workforce.
• Voluntary cuts - No employee wants to see salaries, hours or benefits reduced. But in a desperate situation, it can be helpful to provide employees with a series of options, of which fire and rehire could be one. Here, the employees would at least get a say, reducing the feeling of having new terms imposed on them.
• Phasing in new terms - Another option is simply to say that any new employees will join on new contractual terms. This means new changes will be rolled in over time as employees are replaced. However, employers can be wary of this model as it risks creating a two-tier system of benefits during the transition.
• Rolling in with promotions - If employees are being promoted or moving to another role, this will require a new contract. At this point, employers can make new terms or benefits a prerequisite of the agreement.

What's next for fire and rehire? 

With the best will in the world, businesses will sometimes find themselves stuck between a rock and a hard place. In the last few years, there’s been an unprecedented level of economic volatility – and many have found themselves in this position. 

Nonetheless, fire and hire remains a particularly disliked and unpopular practice. While there’s every chance that it will remain legal in some cases, employers should think carefully about what other options they have and ensure they’re using it only as a last resort.

Find out more: If the business is in a tough situation, offering benefits like flexible working can be a great way to get employees to consent to contract changes. Find out how Breathe can help deliver smooth and effective flexible working requests.