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The end of furlough | What employers need to know about ‘fire and rehire’
With the furlough scheme set to close at the end of September, businesses may soon be forced to make some tough decisions regarding their workforce.
With funding withdrawn, keeping staff employed on their current terms may no longer be viable, and a reduction in employees’ hours or pay could be the only way to survive post-pandemic. Indeed, with employee costs accounting for as much as 70% of total business expenses, it’s hardly surprising that this is often the first option organisations explore when faced with a need to reduce outgoings.
Already, companies such as British Gas have taken the controversial route of ‘fire and rehire’ restructuring in order to save millions, and as financial pressures mount and the need to reduce costs intensifies, it’s likely that more employers will soon follow suit. But with three quarters of the UK public against this approach, unions calling for a ban, and a number of associated legal risks, businesses considering this strategy should proceed with caution.
If you find yourself needing to change employees’ terms and conditions – regardless of what the change is or whether you’re making one or one thousand – here’s what you need to know from an employment law perspective.
First, there are four ways you can change a contract...
- In accordance with the terms;
- By obtaining the employee’s agreement;
- Unilateral variation; and
- Dismissal and reengagement (aka ‘fire and rehire’).
With this in mind, it’s important to note that changing somebody’s contract might not always end up in dismissal and reengagement. Indeed, this is best avoided where possible.
Instead, in order to minimise the potential for commotion and claims, employers should work through the options above. Each of these options involve varying degrees of difficulty and risk; as such, we recommend the following process:
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1. Check the contract
Start by looking at what the contract actually says; is what you are trying to achieve already permitted? If so, this makes things a lot easier in the long run.
Whether or not a change is permitted will depend on the nature of it. For example, it’s rare that a contract will allow you to reduce an employee’s pay, but it may provide a degree of flexibility around start and finish times, job duties and sometimes even hours of work.
You should note that any specific flexibility clauses will be given a restrictive interpretation by the courts and may be limited by an implied term to exercise such flexibility ‘reasonably’. For example, if you are looking to change start and finish times by an hour or so, then in-built flexibility may enable you to do so. However, if the change is more fundamental, this may not work.
2. Sell the change and seek agreement
If you can’t rely on the existing contract, the quickest and easiest way to bring about a change is by negotiation and agreement. It’s also the best option for maintaining good relations with your workforce.
We’re not talking about formal consultation here – that may come later – at this stage, it’s simply a commercial negotiation. This is where your sales pitch comes in; you will need to sell the benefits of the change or the potential consequences of not agreeing to it. In more normal times, this may involve a bit of bartering, though right now it may come down to the unfortunate reality: unless savings are made, redundancies could follow.
James Tamm, Director of Legal Services at Ellis Whittam, says “You may be thinking, ‘if only it was that simple’. However, say you have a big hole in your finances or pension fund and need to save £300,000, and you can do that by either making 10 people redundant or giving everyone a 10% pay cut. Most would agree that the latter is the lesser of two evils. That’s how you need to sell it to your workforce. You should, of course, explore all other options first, such as a recruitment freeze, an overtime ban, etc.”
He continues: “Even if you don’t think you can get everyone on board, it’s worth trying to sell the change first, as you may find that instead of having to dismiss and reengage 100 people, you only have to dismiss and reengage 10, as you are able to persuade 90% to agree to the new terms. As the rules around collective redundancy consultation also apply to dismissal and reengagement, by getting the number of those who don’t agree down to 19 employees or fewer, you may be able to avoid the need to collectively consult.”
While you will want to win staff over to your way of thinking, don’t forget to refer back to the contract if that helps. If you have in-built flexibility and that can be exercised reasonably to bring in the change, say so. You can explain that you are trying to be accommodating as possible, but at the end of the day, your existing contract allows this change – so it’s going to happen anyway.
3. Force the change without consent
If the change isn’t covered under the terms of the contract and cannot be agreed, employers’ options for forcing it through are limited.
Unilaterally varying the contract, i.e. enforcing the change whether employees like it or not, is generally a bad idea, as it will likely result in a breach of contract, giving the employee grounds to sue. What’s more, if the change has economic consequences, they can work under protest, stay employed, and then claim for the difference between the old salary and new reduced salary. It’s the worst of both worlds.
Unilateral variation is best avoided at all costs, but if you absolutely have to, it works best for changes that don’t have direct economic consequences, such as a change in start time without a reduction in hours/pay. Whilst that might still be a breach, the employee’s options are more limited and probably restricted to resigning in response to the breach and claiming constructive dismissal. In current economic climate, it’s less likely employees will go to these lengths, but it would take a brave employer to risk testing the water.
4. Fire and rehire on new terms
If you have exhausted all options, you’re left with the prospect of dismissing the employees on notice and reengaging them on new terms. This is usually preferable to unilateral variation as it is easier to defend, though it’s still a risky road to take.
James Tamm explains: “The main issue with fire and rehire is that it involves a dismissal, which opens the door to unfair dismissal claims. However, if you’ve attempted to bring the change about via negotiation first and have a solid business case for the change, you may well have a decent defence.”
The real problem here is time. Employees must be dismissed on notice, which could be as much as 12 weeks depending on length of service or contractual terms. As a further hurdle, if the changes involve 20 or more dismissals, the collective consultation requirements will be triggered, making the process even longer. In the current crisis, time is unlikely to be on your side.
James Tamm, Director of Legal Services
Ellis Whittam
3 ways to strengthen your position when firing and rehiring
Whilst it is not the place of an Employment Tribunal to tell you how to run your business or judge commercial decisions, it will help your case enormously if you can provide your latest financial reports and evidence the shortfall you were facing, as well as the other money-saving measures you put in place first before firing and re-hiring.
Dismissal and reengagement should always be a last resort. If it’s not, it’s unlikely you will be able to defend a claim. It’s all about acting ‘reasonably’, and while there’s less room for negotiation right now, a Tribunal would expect you to explore other avenues and at least attempt to seek agreement first.
Don’t forget about your processes. In most cases, the employees who are subject to dismissal and re-engagement would be invited to a meeting to discuss the issue and offered the chance to appeal. That is in addition to whatever collective consultation may have taken place depending on the numbers involved.
Final thoughts
While there has been a lot of commotion and media coverage around fire and rehire recently, it isn’t a new phenomenon.
James Tamm says: “Employers have been using dismissal and reengagement for decades and it is a potentially fair reason for dismissal. It just so happens that the GMB Union have done a very good job with the PR around the British Gas issue, drawing on COVID-19 and the fact that those affected are key workers who have been working tirelessly to help people throughout the pandemic. In reality, this sort of thing happens all the time, though it’s likely to become more common as the end of the furlough scheme draws closer.”
However, with renewed interest in these tactics and the spotlight now on companies, fire and rehire has become “Britain’s new labour battleground”, with polling suggesting that the public supports a legal ban on the practice. Even so, James Tamm says that the headlines are unlikely to result in a change.
He explains: “Despite whatever noises the government might make, it’s highly unlikely it will remove fire and rehire as an option because in some cases the employer literally doesn’t have any other choice and will have to use this as a last resort. The protections for employees already exist. They can bring a claim for unfair dismissal, and it’s up for a Tribunal to decide whether or not what the employer did was within the range of reasonable responses, whether they followed the correct procedure, and to dig down into the rationale.
“Ultimately, if no further funding is made available, cutbacks will need to be made, and businesses will be forced into this approach whether it’s popular or not.”
Speak to a specialist
Between April 2019 and March 2020, the average award for unfair dismissal was £10,812. Claims for breach of contract may cost much more. As such, when attempting to change employees’ terms and conditions, it’s always safest to seek advice first.
Our qualified Employment Law specialists can talk through your plans with you and help you to execute them compliantly, saving you time and minimising the potential for disruption and legal risk. For support, call 0345 226 8393 or request your free consultation using the button below.
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