Fire and rehire tactics

The last couple of years have seen great changes in the workplace – not least, where the workplace is for many! – and employers are having to re-structure, cut costs, find news to deliver products and services… all to survive (and hopefully thrive) in the much-talked-about ‘new normal’.

It’s only logical that many businesses are looking at their workforce’s employment contracts and finding them not so fit for purpose in 2022. According to Acas, contracts can be adjusted if a) they include a flexibility clause, b) the employee is consulted and agrees, or c) employee representatives (e.g. a union) agree.

But not every employer is inclined to engage in prolonged negotiations, searching for an elusive win-win with the workforce. Not when there is a much quicker, and technically legal, option available: fire and rehire.

According to a TUC survey conducted last year, one in 10 workers had to reapply for their own jobs on worse terms in the first year of the pandemic. The practice may be common, and legal, but it’s not without difficulties for the businesses that use it, not least its one-sidedness and the inevitable impact on employee relations.

What is fire and rehire?

Put simply, an employer wishes to vary an employee’s contract. Usually the change is unfavourable to the employee in some way, such as reduced hours, pay or benefits and the employee does not or is unlikely to agree. The employer then decides to terminate the contract and invite the employee to reapply for the role which is now redesigned to incorporate the changes. Employees whose contracts have short notice periods, or have less then two years’ service can be particularly subject to this tactic.

The risks of firing and rehiring

While the practice might be within the letter of the law, that doesn’t mean there aren’t repercussions for employers that use it; namely:

• Relations with rehired employees are likely to be poor (many businesses have survived the last two years due to employee good will – kiss goodbye to that if you’ve just manipulated them into poorer terms and conditions.)
• Reputational damage – more and more, clients and customers like to think they’re sourcing their products and services ethically; fire and rehire may be legal but it doesn’t do much for public image.
• Recruitment – at a time of record vacancies on the UK job market, job applicants arguably have more choice of where to work. A company with a history of fire and rehire is, let’s face it, a less attractive option.
• Tribunal claims – lawfully terminating employment contracts and then re-employing on reduced terms is not necessarily free of legal consequences. First, any employee with more than two years’ service who feels forced to accept the new contract may have grounds for an unfair dismissal claim. And then there’s the recent case of Tesco…

USDAW and others v Tesco Stores Ltd

Tesco workers’ contracts included a ‘retained pay’ clause, stating that employees transferred to different sites would maintain their current pay. The supermarket announced the removal of the clause and that employees who didn’t accept the change could be fired, and rehired on the new contract. Staff union USDAW mounted a legal challenge.

In February 2022, although the High Court found nothing illegal in the intention to fire and rehire, in this case, the existing contract included an implied term that Tesco would not use its right to terminate employee contracts, “for the purposes of removing the right to Retained Pay.”

The result? A High Court injunction blocking Tesco from firing and rehiring the affected employees.

It appears that while fire and rehire might be a legal tactic, the courts are willing to look deeper into the circumstances of individual cases and apply contract law in the employees’ favour…

While the Tesco High Court decision is only a binding precedent on lower courts in the UK system – leaving open the possibility of a reversal in the Court of Appeal, say – HR and legal experts are viewing it as an indicator of the legal position going forward. And it’s likely to be a cautionary tale to any employer looking to fire and rehire without attempting good faith consultation and negotiation first.

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