Fire and rehire latest | Government and Tribunal weigh in

Written on 2 June 2021

Last month, with businesses such as British Gas making headlines, our Director of Legal Services, James Tamm, spoke about the dangers of ‘fire and rehire’ tactics and outlined employers’ options when it comes to making changes to employees’ terms and conditions.

Since then, there have been further developments, including a case in which a solicitor was found to have been unfairly dismissed for refusing to agree to contractual changes and a debate in the Commons in response to an Acas report on the matter.

In short, fire and rehire is legal, though certainly controversial. Oftentimes, it is the only viable option for cash-strapped businesses who would otherwise be forced to make staff redundant. That said, it is a risky route to take and employers should arm themselves with the facts first.

So, based on what we now know about how an Employment Tribunal may deal with cases of this nature, and the government’s stance on the issue, should businesses continue down this path?

Here’s what you need to know.

Khatun v Winn Solicitors

In this case, the defendant employer, Winn Solicitors, furloughed around half of its employees in response to the economic challenges of the coronavirus pandemic. Others, including the claimant, Ms Khatun, were chosen to stay working, picking up the cases of the firm’s furloughed staff.

All employees were given an ultimatum: agree variations to their contracts which would allow the firm to place them on furlough or unilaterally reduce their hours and pay by up to 20%, or face likely dismissal. Staff were told that these changes were non-negotiable and given 24 hours to sign on the dotted line.

Ms Khatun refused to agree. She stated that as she was remaining in work and continuing to perform the job she was contracted to do and more, she saw no reason for the changes to her contract. She explained that she would consider a variation in future, should the firm need to furlough her. After numerous failed attempts to persuade her agree, Ms Khatun’s employment was terminated without notice, pay in lieu or accrued holiday pay, despite the HR Director warning the firm’s Chief Operating Officer that this would amount to breach of contract.

Ms Khatun brought a claim for unfair dismissal.

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The Tribunal acknowledged that the firm had “some other substantial reason” for seeking to implement these contractual changes given the impact of the pandemic on businesses. With this hurdle overcome, it turned to whether the firm had acted reasonably in the circumstances.

On the one hand, the fact that Ms Khatun was the only employee (out of 300+ staff) who had refused to sign the variation appeared to indicate that the firm had indeed acted reasonably. Nonetheless, the Tribunal was not satisfied that there had been any meaningful consultation on the matter, save for “one-sided” conversations in which, rather than explore alternatives, the firm simply reiterated its position. The Tribunal rejected the firm’s claim that it didn’t have the time to consult with everyone, pointing out that it would have only needed to engage in meaningful discussion with the claimant, given all other staff had already agreed.

To add to the claimant’s case, the Tribunal found that the firm:

  • Had not explored alternatives to dismissal;
  • Had already decided that it would proceed with dismissal if the claimant didn’t agree, without any process being followed;
  • Had not offered Ms Khatun the right of appeal; and
  • Had rushed into dismissal just 48 hours after issuing Ms Khatun with the new terms to sign, leaving no time for the above.

For these reasons, the Tribunal concluded that the dismissal was unfair as it did not fall within the ‘range of reasonable responses’ open to a reasonable employer, the test against which employers’ behaviour and decisions are measured.

"While this is not strictly a case of fire and rehire as there was no suggestion that the firm planned to re-hire the claimant on new terms, the same principles of unfair dismissal law apply, namely the concept of reasonableness. Note that the Tribunal had no issue with the principle of dismissal and re-engagement but criticised the employer for a lack of meaningful consultation and a failure to reasonably consider alternatives to dismissal, especially as the claimant had attempted to reach a resolution by suggesting that she remain on her current terms until such time as the firm needed to furlough her or reduce her hours. Unfortunately, the employer had already closed its mind to any other outcome, which was ultimately its downfall.”

James Tamm, Director of Legal Services
Ellis Whittam

The government's stance

Having been asked by the government to investigate the issue, Acas published its long-awaited report on dismissal and re-engagement on 8 June.

In it, it suggested a number of legislative options for bringing this practice under control, such as “tightening up the law around unfair dismissal; enhancing the requirement and capacity for employment tribunals to scrutinise businesses’ rationale for change in relevant cases; protecting continuity of employment in fire-and-rehire scenarios; and strengthening employers’ consultation obligations around proposed dismissals”.

It also put forward some non-legislative options, including “improved guidance for employers on relevant legal obligations and good practice” and “publishing ‘name and shame’ data on employers’ use of fire-and-rehire practices on a government website”.

At the time of writing, the government is reportedly still considering its response; however, a Commons debate on 25 May did shed some light on the government’s stance.

In short, the government has always been clear that it is “completely unacceptable” to use the threat of fire and re-hire as a tactic to put undue pressure on workers during negotiations. However, during the recent debate, Paul Scully MP said that while the government “expects employers to treat staff with empathy and compassion”, it is important to “tread carefully when considering government intervention in commercial contractual matters between employers and employees.” In other words, it is seemingly reluctant to get involved.

Mr Scully also said that the government “must also allow businesses to take the sometimes-difficult decisions that are necessary to preserve their commercial viability”, which seems to suggest that businesses will be excused if they find themselves with no other option.

James Tamm says that while nothing said in the Commons takes us much further forward in respect to a definitive position on fire and rehire, the overall tone suggests that the government is unlikely to do anything about employers who use these tactics.

He explains: “I take MPs’ recent comments to mean that nothing will change, save for reiterating that fire and rehire should be a last resort, which is pretty much the case anyway. This is just an assumption until its response on the matter is published, but the fact that there was no mention of fire and rehire in the Queen’s Speech last month does seem to suggest that the government is taking a back seat on the issue.

“Without any practical change to existing law, hauling companies over the coals for these practices will be little more than a headline grab.”

The government has promised to communicate next steps “in due course”, saying it must “consult and ensure that legislation is made with careful consideration and debate”.

"Taking both these updates into account, it appears the government’s message that these practices are “completely unacceptable” is at odds with the case law, which asks whether the employer had sound business reasons for the change, acted reasonably, considered alternatives, and engaged in meaningful consultation. In reality, it seems that if those tests are met, the employer may be able to defend any claims of unfair dismissal, despite the government’s lukewarm attempt to deter such practices.”

James Tamm, Director of Legal Services
Ellis Whittam

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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