What is ‘Fire and Rehire’ and why is the government cracking down on it?

The government has promised to introduce a set of reforms to employment law called ‘Make Work Pay’. Among the pledges, Labor will end the practice of making staff redundant and re-employing them on worse conditions.

Various large organisations have been accused of abusing the procedure, known as fire and rehire, in recent years. They include P&O Ferries and British Airways (BA).

In July, a new code of practice for employers was introduced by the previous government to combat bad actors. But Labour wants to go further. Below, we explain how fire and rehire works, why it happens, and what the rules are (and could become) for employers.

How does fire and rehire work?

Fire and rehire is where a business dismisses its employees only to immediately rehire them under new contractual terms, often for less pay.

Some businesses let staff go and then bring them back for non-nefarious means. Elon Musk seemingly regretted laying off his 500-strong Tesla Supercharger team in April and began rehiring them just one month later.

But fire and rehire refers specifically to a workplace trend where companies misuse the practice for their own gain. It gained attention during the pandemic, when firms were forced to end or pause employee contracts due to lost earnings.

After the world began to reopen in 2021, many businesses took these ex-employees back on. Some took advantage. They made the repeat hires sign contracts with updated terms of employment that were more favourable to the employer.

Organisations caught out for fire and rehire include P&O Ferries, which laid off 800 workers in 2022 and replaced them with cheap agency staff. Last month, BA lost an appeal after it was found to have used fire and rehire to force through a pay cut in the same year.

But fire and rehire can still happen at small businesses. Business owners might decide to cut pay, reduce holiday leave, or even introduce longer shift patterns in order to save money. And without union representation, this exploitation can fly under the radar.

Is fire and rehire illegal?

Fire and rehire is not currently illegal. There are specific cases where it may even be necessary. For example, if a business is facing bankruptcy, firing employees and then rehiring them on new terms might be the only way to restructure and avoid closure.

However, it’s important to note that fire and rehire is generally seen as controversial and unethical. The CIPD recommends it is used as “an absolute last resort”.

The policy is controversial because it backs employees into a corner. Most feel compelled to accept the changes to their contract rather than say no and risk being given the sack.

This Catch 22 can sour worker relationships and negatively impact employer reputation. Soon, thanks to the government’s Make Work Pay plan, it could also lead to penalties.

New code of practice for fire and rehire

In July, a new code of practice on fire and rehire policies, implemented by the previous government, came into force. It suggested guidelines for UK employers such as:

• Inform employees about proposed contract changes
• Contact dispute-resolution service ACAS for advice
• Re-examine the proposals

The new government has said that this code does not go far enough, and said it would take further steps to “end” fire and rehire if it won the election. The UK’s new business secretary, Jonathan Reynolds, was a vocal critic of the P&O Ferries fire rehire controversy.

Labour’s vow sounds promising. But it is unclear what the ‘strengthened’ code of practice would look like. Labour has committed to introducing its Employment Rights Bill in its first 100 days, which gives it until 13 October 2024 to unveil the plans.

An outright ban is unlikely. But the government could restrict firing and rehiring to cases where it is vital for business survival. Cases of misuse would then lead to an employment tribunal, where guilty companies are usually made to pay 50% of the award money.

What should businesses do instead?

It is normal for employers to regularly review the terms and conditions of employee contracts. However, best practice dictates that any changes be made with the workers’ consent, and with the employee made fully aware of how it might affect their role.

Some companies choose to instil ‘flexibility clauses’. These allow business leaders a bit of wiggle room if they feel an employees’ role might need to change in future. For example, it might say that a worker might be asked to work from the firm’s sister office from time-to-time.

If a flexible clause has not been written into the contract, and the worker does not agree to the changes, a formal consultation is the next play. This is an opportunity for both parties to fully consider the repercussions of the changes and reach a mutual agreement.

Fire and rehire might be technically legal, but it is certainly ethically questionable. As Labour prepares to crack down on the practice, bosses tempted by the cost savings must now decide if the long-term losses for employers outweigh the short-term wins.