Is it legal to ‘fire and rehire’ my employee?

  • Employment Contract
Two women in business attire sat at a desk in conversation
Alan Price - Peninsula's Chief Operations Officer and CEO of BrightHR

Alan Price, Chief Operations Officer

(Last updated )

If you’re thinking about changing your employee’s terms and conditions, be aware that using certain tactics could land you in legal trouble.

Last year, P&O Ferries came under fire for dismissing over 800 workers without prior notice or consultation, and then rehiring new, cheaper staff to replace them. The dismissals gained mass media attention, with the public accusing the company of using unethical ‘fire and rehire’ tactics, or what HR calls dismissal and re-engagement.

While the government hasn’t put a ban on fire and rehire, it’s risky and controversial. That’s why they’ve now launched a consultation on the draft code of practice, with plans to finalise and publish an official one at a later date. This is to give employers guidance on how to fire and rehire staff fairly.

To learn more about the risks of using fire and rehire tactics on your staff, and how to stay in line with HR principles, read on…

What is ‘fire and rehire’?

A company might ‘fire and rehire’ an employee they want to keep employing, but under new terms.

So, how it works is that the employer will end their employee’s contract and immediately offer them a new one. Generally, the terms of this new contract will suit the employer more than the employee. For instance, it may mean asking the employee to agree to a pay cut or working longer hours.

Why might I choose to ‘fire and rehire’ an employee?

You might fire and rehire an employee if it’s in the interests of your business to change their contractual terms, but they won’t agree to it voluntarily. Fire and rehire essentially gives you a way to impose these new terms on your employee.

What if my employee refuses the new terms?

If you offer your employee new terms and they refuse them, you’ll need to have a chat with your employee to find a compromise. Legally speaking, this is called ‘consulting’ and you need to do this by law whenever you want to change the terms and conditions of someone’s contract.

If you can’t reach a compromise after consulting, by the rules of fire and rehire you can still end your employee’s current contract and re-hire them on the new terms anyway. This puts your employee in a position where they have to either accept the new terms or leave the company (hence why it’s controversial).

And because you have to dismiss them, your employee could claim for unfair dismissal. That’s why to defend yourself, you have to be able to show you consulted your employee fairly and thoroughly. You must also be able to show that you dismissed them fairly and for a change you can justify.

And whether they agree to the terms or not, you still have to let your employee work their notice period on their current contract. Then, you can set them up with a new one. You should find the notice period written in their contract, so give them that or the statutory amount (whichever is more).

Is it legal to ‘fire and rehire’?

It is legal to fire and rehire an employee, but it comes with legal risk. How? The risk lies in the name. You have to fire your employee to rehire them.

And if your employee has worked for you for two years or more, you must follow a fair procedure to dismiss them. If you don’t, they could take you to a tribunal and successfully claim for unfair dismissal. This may not only damage your reputation, but leave you with a hefty amount of compensation to pay out.

Plus, if you end your employee’s contract and force them to accept less generous terms, they’re not going to be happy about it. So, it could have a negative effect on morale and staff relations too.

That’s why fire and rehire tactics should always be a last resort, after following a fair process.

How can I follow a fair process?

There are specific rules you have to follow if you’re dismissing someone. The government’s draft code of practice tells you how to change your employee’s terms and conditions, while keeping legally safe under HR principles.

It’s not official yet, but here are the current rules:

  • You must consult

Before imposing new terms, you must consult with your employee. Your employee may even be more willing to agree to the changes if you consult them first, especially if you explain that it’s for the sake of the business.

  • You must be sure it’s absolutely necessary

Ask yourself - do you actually need to fire and rehire your employee? Do you have a right to change your employee’s contract without needing to offer them a new one? For example, do you have a variation clause that means you can make changes to the contract? Or alternatively, if it’s about a pay cut, is there any other way you could reduce your costs?

  • You must not use threats of dismissal

If your employee doesn’t agree to the changes, you cannot pressure them by making threats to dismiss them. Instead, together you should explore alternative options and try to negotiate.

While this code will not make fire and rehire illegal, you will have to follow it. Because if a tribunal finds that you didn’t follow this code when you dismissed your employee, they could increase the compensation you have to pay by up to 25%.

Can my employee appeal against the new terms?

You don’t have to let your employee appeal if you don’t want to. However, it may make your process seem less reasonable to a tribunal if you don’t allow the appeal.

And if your handbook says employees can appeal dismissals and you didn’t allow them to, they could claim for a breach of contract. Plus, allowing your employee to appeal internally may actually help you avoid a tribunal if you can resolve the issues before it escalates.

If I want to change my employee’s terms and conditions, should I get advice?

Fire and rehire tactics may always put you at risk of tribunal claims. Because whenever there’s a dismissal, there’s a risk.

So ask yourself, does your business depend on re-engaging your staff on new terms? And if so, are you ready to consult? Do you know the steps for a fair dismissal? Missing a step in procedure could cost you, so make sure your answer is yes.

For peace of mind, get advice from a HR expert first. They’ll help you take the right steps to support your business, while keeping you and your staff safe from risk.

And if you have any questions or concerns, call us on 0800 029 4384 to get free advice today.


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