Government reforms (5):  ACAS Guidance – Fire and rehire

What do we already know?

The practice of fire and rehire (also known as ‘dismissal and re-engagement’) is a way in which an employer can change terms within employees’ contracts of employment by giving notice to terminate and offering re-employment on new terms.

This strategy is generally used as a last resort where the change cannot be agreed with the employee.  However, the practice has increasingly been used during the COVID-19 pandemic and its use by high profile employers (such as British Gas and British Airways) has meant that it is been headline news.

ACAS published a report on this practice of ‘fire and rehire’ on 8 June 2021 (in response to the Government’s request for this). However, the report did not contain any firm recommendation to introduce legal reform. The Government instead asked ACAS to provide more detailed guidance on how and when termination and re-engagement should be used, and ‘good practice’ for employers.

What’s new?

ACAS has published guidance (available here) for employers on making changes to employment contracts.  The title of the guidance is Making changes to employment contracts – employer responsibilities and ‘fire and rehire’ is not mentioned until very late in the guide.

The guide is accompanied by the ACAS Chief Executive, who explains that their advice is “clear that fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations.  Employers should thoroughly explore all other options first and make every effort to reach agreement with staff on any contract changes.  Organisations that consult with their workforce in a genuine and meaningful way about proposed changes can help prevent conflict at work and stay within the law.”

Key points in the guide include:

• reminding employers of the need to inform and consult with staff or their representatives, and to provide information about the rationale for the changes and the likely impact if changes are not accepted;
• explaining why genuine consultation is important and how it may help obtain employee agreement to the proposals, or reach a compromise that both the employer and employees can support;
• warning employers not to use threats about what will happen if the proposed change is not agreed, particularly at an early stage of discussions;
• suggesting that managers and employee representatives are given training on consultations and negotiations to ensure that discussions are effective;
• indicating that employers should continue to explore options and alternatives to the proposed changes “for as long as is reasonably possible”;
• reminding employers that dismissing and re-engaging (or ‘firing and rehiring’) employees in order to make the proposed change should be viewed as a last resort; and
• offering collective conciliation through ACAS to try to reach an agreement where an employer is negotiating with a union.

The guide also highlights that if an employer is proposing to dismiss (and then rehire) 20 or more employees within a period of 90 days or less, they will be under an obligation to collectively consult with employees – as they would for making redundancies in such numbers. Failure to collectively consult risks protective awards of up to 90 days full pay per affected employee.

Further, the guide reminds employers that dismissal prior to re-engagement still requires correct notice to be given to the employee, there needs to be a fair reason for the dismissal and a fair procedure, including right to appeal, should be followed.

Finally, ACAS warns that fire and hire should be avoided where possible, as it can result in legal claims and cause immediate and long-lasting damage to employee relations, future recruitment and the employer’s reputation.

In summary, this is only guidance and the legal position has not changed.  Employers can continue to use the practice of ‘fire and re-hire’.  However, ACAS has certainly made its position clear that it does not support the practice and we recommend that  employers (continue) to use dismissal and re-engagement as a last resort.