ACAS publishes report on “fire and re-hire” practices

The practice of dismissing and reengaging employees (commonly referred to as “fire and re-hire”), as a means of lawfully making changes to an employee’s terms of employment, has recently been subject to scrutiny. This has been prompted, in particular, by the impact of the Covid-19 pandemic and recent high-profile disputes relating to the use of the practice by British Gas.

In response, the Department for Business, Energy, and Industrial Strategy (BEIS) invited ACAS to carry out an independent and impartial fact-finding exercise on the practice of “fire-and-rehire” in the context of employment. The ACAS report was published on 8 June 2021 and can be found here. This note highlights the key points and some specific considerations for schools.

Changing terms and conditions: what is “fire and re-hire”?

There are a number of ways in which an employer can lawfully vary the terms and conditions of an employment contract. Some contracts may contain an express clause that allows an employer to unilaterally vary certain terms without first requiring an employee’s agreement. Where there is no such clause, an employer may vary the contract with the consent of the employee or the consent of a recognised trade union, where there is a collective bargaining arrangement in place.

If none of these circumstances apply, an employer can, in principle, enforce a contractual change by dismissing any objecting staff on notice and offering them immediate re-engagement on the varied terms. Whilst this is, currently, a legitimate way in which contractual terms may be varied, ACAS guidance is clear that it should be seen as a last resort, following consultation with the affected staff.

The ACAS report

Fifteen organisations were invited to contribute to the fact-finding exercise. This included stakeholders from employer bodies, trade unions and employer advisory contacts (including employment lawyers, accountants, HR, and payroll services). As the participants were from both employee and employer focused backgrounds, many of the views varied. Some felt that “fire and re-hire” could never be justified and should be outlawed. Others felt that it could be justified as a last resort and expressed concern that reform in this area may lead to a lack of flexibility, business failure and redundancies.

Participants reported that the “fire-and-rehire” practice has been used in a range of circumstances including in redundancy scenarios, as a means of harmonising employee terms and conditions and to interrupt continuity of service. It was noted that it is not a new phenomenon, but it is a practice that has become more commonly used in recent years and during the Covid-19 pandemic.

One of the concerns highlighted in the report was that “fire-and-rehire” has been increasingly used at an early stage of consultation processes. It was suggested, however, that this may reflect the nature of the urgent business challenges presented by the Covid-19 pandemic. The report also highlighted a concern that there may be a further increase in the use of the practice as furlough and Covid-19 related business support initiatives are wound down.

The current legislative framework on unfair dismissal was criticised by some participants, in particular the fairly limited extent to which employment tribunals will question an employer’s financial situation and business rationale for making proposed changes in order to justify fire and re-hire tactics.

Recommendations

In order to address these concerns and to offer greater protection to employees, the participants recommended a number of legislative measures. These included:

• Reforming the law on unfair dismissal to provide greater protection to employees who are dismissed for failing to agree to detrimental changes in terms and conditions.
• Strengthening the requirement for employment tribunals to scrutinise the business reasons advanced by employers to justify “fire-and-rehire” dismissals.
• Reforming collective consultation obligations to include amending the legislation to explicitly state that no notices of dismissal can be given until the consultation process is complete (as opposed to at the start of negotiations).
• Protecting continuity of employment by providing legislation to ensure employers cannot “fire-and-rehire” employees because they are nearing two years of service (at which point they will gain greater employment rights).

The participants also recommended a number of non-legislative measures. These included:

• Introducing non statutory guidance for employers, to be produced by ACAS, focusing on the law and good practice around varying terms and conditions with agreement.
• Collecting further data on the use of “fire-and-rehire” practices.
• Providing longer term information about the future of furlough and related business support schemes.
• Improving channels for communication and consultation in non-unionised workplaces.

Impact on schools

The report offers an insight into the views of both employee and employer focused groups on the practice of “fire and re-hire”. The government have asked ACAS to produce further guidance that encourages good workplace practices when negotiating changes to staff contracts.

At present, however, it does not appear that the government will look to change the existing legislative framework or implement new legislation in this area. For now, the practice remains a legitimate means by which contractual terms can be varied in the absence of express agreement.

The report does, however, highlight the importance of employers engaging in genuine and meaningful consultation processes when proposing changes to employee terms and conditions, and that dismissing and re-engaging employees on the proposed new terms and conditions should be a last resort.

This is particularly pertinent to independent schools currently engaging in consultations with teaching staff, or considering doing so, in respect of a proposal to withdraw from the Teachers’ Pension Scheme (TPS).

Any such proposal would amount to a change in terms and conditions and, in many cases, may be perceived negatively by staff and result in objections. Schools may legitimately consider the option of dismissal and re-engagement if it is not possible, following appropriate consultation, to reach agreement with individual members of staff.  Whilst such an option remains legally permissible, the report demonstrates that it is currently subject to scrutiny and schools should be mindful of the need to ensure that such a step is taken as a last resort and only after a period of genuine and meaningful consultation.

If schools are considering changing their employee’s terms and conditions, they should seek legal advice in regard to implementing the changes and any process that should be followed.