Controlling Fire and Rehire: Understanding the Latest Legislation Changes

In recent years, the practice of “fire and rehire“ has become a contentious issue in the UK, with both employees and employers grappling with its implications. As legislative changes come into play, it is crucial for businesses to understand their legal responsibilities and for employees to know their rights. This article provides an overview of the latest changes, what they mean for employers and employees, and what the future holds for fire and rehire under Labour’s proposed legislative reforms.

What is Fire and Rehire?

Fire and rehire, also known as dismissal and re-engagement, is when an employer terminates an employee’s contract and offers to rehire them on new terms, often less favourable. Some companies have used this practice to enforce contractual changes when negotiations fail. While not outright illegal, the method has long been criticised for its heavy-handedness and negative impact on employee relations.

The UK’s first Statutory Code of Practice on “Dismissal and Re-engagement” was enacted in July 2024. Although the fire and rehire process has not been entirely banned, the new code clarifies that this should be a last resort, to be used only after all other avenues, such as negotiation and voluntary agreements, have been exhausted.

The New Statutory Code of Practice: What Employers Need to Know

The new legislation introduces several fundamental obligations for employers considering fire and rehire. It mandates that employers undertake meaningful consultation with employees before taking drastic action. If a business intends to implement employee contract changes that could result in dismissal, the code insists these must be necessary, justified, and communicated transparently.

The main points of the code are as follows:

Fire and rehire as a last resort: Employers must demonstrate that all other options have been explored before engaging in dismissal and re-engagement. This includes conducting a meaningful consultation with employees and, where applicable, trade unions.

Transparency and consultation: Employers must provide clear information regarding the proposed changes, the business reasons behind them, and what alternatives have been considered.

Avoidance of undue pressure: Employers should not use threats of dismissal as a negotiation tactic to push employees into accepting new terms. Such behaviour could lead to reputational damage, strained employee relations, and potential legal claims.

Compliance with collective bargaining: Employers must adhere to collective bargaining procedures if employees are part of a union. Making direct offers to employees without going through the union could lead to legal repercussions.

Employers not complying with the statutory code face a significant risk of tribunal claims. If an employment tribunal finds that the code has been breached, they may impose penalties such as a 25% uplift in compensation awards.

Implications for Employers

While the fire and rehire process is not outright banned, the new code significantly limits its use, placing stringent expectations on employers to follow a fair and transparent procedure. Businesses must ensure that any dismissal and re-engagement process complies with the following:

This should be conducted with employees and, where applicable, their trade unions. Employees must have the opportunity to provide feedback and suggest alternative solutions.

Employers should keep detailed records of the consultation process and any steps taken to explore alternative solutions before resorting to dismissal and re-engagement.

Given the complexity of the new code, seeking professional HR advice is highly recommended for employers to navigate these changes and minimise the risks of tribunal claims.

Labour’s Proposed Reforms

Looking ahead, businesses should also be aware of potential future changes put forward by the new Labour government. As part of its “Plan to Make Work Pay,” Labour has proposed an outright ban on fire and rehire practices. This would include the current practice of dismissing and re-engaging workers and the related process of “fire and replace”.

Labour’s stance is that businesses should restructure through proper consultation with employees rather than using threats of dismissal to force changes. Under this plan, Labour would replace the existing statutory code with a strengthened code of practice that completely prohibits fire and rehire, ensuring that terms and conditions cannot be altered under the threat of job loss.

Key Aspects of Labour's Proposed Reforms:

Labour plans to outlaw the practice altogether, forcing businesses to find new ways to manage employment term changes. This could make restructuring more complex and increase reliance on voluntary agreements or more significant redundancy payouts.

Labour’s reforms may also include stricter redundancy consultation rules. Under these proposals, employers would be required to consult not just at individual locations but across the entire business, further complicating restructuring efforts.

Labour’s plan could undo recent changes to the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), making it harder for employers to dismiss employees after a business transfer. This would likely require more extensive consultations and greater worker protection during mergers or acquisitions.

Implications for Employees

For employees, these changes provide much more robust protection against sudden contract changes. The statutory code already limits employers’ ability to impose new terms unilaterally, and Labour’s proposed reforms would strengthen this further by banning fire and rehire altogether.

Employees facing dismissal and re-engagement can expect more extended consultation periods, more detailed information about the reasons for changes, and potentially greater bargaining power during negotiations. However, it is crucial for employees to remain aware of their rights, particularly if their employer attempts to bypass the consultation process.

Preparing for the Future

The recent and proposed changes to fire and rehire practices represent a significant shift in UK employment law. Employers must now follow stricter rules when attempting to alter employment contracts, ensuring that consultation is thorough and that alternatives to dismissal are considered. At the same time, employees enjoy enhanced protections against unfair dismissal and changes to their contracts under threat.

While the current statutory code does not ban fire and rehire, it makes it a much less attractive option for businesses. With Labour’s proposed reforms on the horizon, the practice could be banned altogether, leading to even more stringent rules around restructuring and contract changes.

For both employers and employees, staying informed about these developments is essential. Employers must adapt their HR practices to remain compliant with the new regulations, while employees should be aware of their rights to challenge unfair dismissal or contract changes. Legal and HR advice will be critical in navigating this evolving landscape.

If you need further guidance on how these changes might affect your business or your rights as an employee, our team of employment law experts is here to help. Contact us today to discuss your situation.