Should we ban ‘firing and re-hiring’?

Keir Starmer addresses the TUC today and – such is the nature of these events – we already know what he is ‘expected to say’. Starmer will condemn employers (recent examples include British Gas and British Airways) that have fired staff only to re-hire them on less favourable terms and conditions. According to the Guardian he will say that such practices are:

‘not just wrong but against British values’

and that:

‘These tactics punish good employers, hit working people hard and harm our economy. After a decade of pay restraint – that’s the last thing working people need, and in the middle of a deep recession – it’s the last thing our economy needs.’

Now we are some four years away from a Labour Party manifesto that might actually propose a change of the law in this area, so I don’t criticise Starmer for being vague about what is actually being proposed here. What we are getting is not so much a new policy as a ‘policy flavour’ (Copyright: ‘The Thick of It’). But it is worth looking at what the law actually is on this topic before deciding whether it needs changing and what a change might look like.

The practice of dismissing employees and then reengaging them on different terms and conditions is not one confined to bad employers. It is the nuclear option in the negotiation of contractual changes, but it is one that has been used by employers of all types in both the public and private sector. The reason it is a ‘thing’ is that contracts of employment cannot just be varied unilaterally. A contract is an agreement and so any changes to it also have to be agreed by both sides. Sometimes that agreement is given in advance – where the contract includes a variation clause – but the extent to which an employer can rely on those to make major changes is not entirely clear. Normally new terms have to be negotiated – either with a recognised trade union or individual employees. If negotiations break down for any reason, the original terms continue in place.

But while an employer cannot change the contract unilaterally, it can bring it to an end. By giving notice of termination the employer can end the contract that it doesn’t like and then propose a new one that the employee is free to accept or decline. Since declining the offer will leave employees out of a job we might query the extent to which they have a free choice in the matter, but that is at least the legal position.

It is easy to find examples of employers resorting to this tactic in a way that would strike most people as unfair. A successful company imposing a pay cut or reducing entitlements just because it can will not attract much sympathy. But you can equally easily give examples of employers who were just doing their best to protect as many jobs as possible. Perhaps the change is the only way that the employer can avoid widespread redundancies. Perhaps most of the workforce is willing to agree to the new arrangement and it is just being blocked by a few employees who are unwilling (or unable) to make the change.

It is not that the practice of ‘firing and re-hiring’ is in itself unfair. Rather, it is the substance of the changes being made and the wider circumstances faced by the employer that make the difference between a reasonable reorganisation and an unreasonable abuse of the employer’s power.

And employment law is already involved. An employee who is dismissed and then reengaged has still been dismissed. A dismissal is the termination of a contract of employment by the employer – it does not go away if the employee accepts a new contract. Employees with two years’ service can claim unfair dismissal even if they accept the new contract and continue working for the employer. An employer who dismisses hundreds of staff just to impose new terms and conditions on them is risking hundreds of individual tribunal claims.

Where the process affects more than 20 employees there is also (it seems) an obligation to consult employee representatives exactly as though this were a mass redundancy exercise. This is because that is what it is. Redundancy for these purposes has a wider meaning than when we are considering the fairness of a redundancy dismissal or an employee’s entitlement to a redundancy payment. When it comes to collective consultation the test is whether the employer is proposing to dismiss employees for a reason ‘not related to the individual concerned’ (S.195 Trade Union and Labour Relations (Consolidation) Act 1992). It is widely accepted that an exercise that involves dismissing employees who don’t agree to new terms and conditions falls under this category. Personally I’ve always thought that the employer could argue that each dismissal was based on the individual employee’s refusal to accept the change, but that is a debate for another day. And of course, while the employer must consult ‘with a view to reaching an agreement’ with the representatives, the reality is that an employer is not obliged to change course as a result of the consultation. The duty to consult imposes a time constraint (30 or 45 days depending on the number of employees affected) and requires the employer to jump through some procedural hoops – but it doesn’t provide any mechanism for judging the fairness of what is being proposed.

In reality, nor does the law of unfair dismissal. The ‘range of reasonable responses test’ means that tribunals have limited scope for inquiring into the fairness of the change that the employer is making. They can ask whether the employer had a legitimate business reason for the change being proposed, but can’t delve too deeply into whether or not the employer could have solved its problems some other way. Instead they tend to concentrate on the way in which the change was made – whether the employer genuinely tried to reach an agreement with the employees first and what consultation took place when dismissals were planned as an alternative.

This is a problem that goes way beyond ‘firing and re-hiring’. The need for a tribunal to avoid ‘substituting its own view for that of a reasonable employer’ has turned unfair dismissal into a largely procedural right with the case law concentrating on how the employer has gone about dismissing employees and not looking too closely at the strength of its reasons for doing so. If I were in charge of employment law I would want to do something to fix that – and Britain would be a better place.

All the same, an employer who is ‘firing and re-hiring’ (I can’t believe I’ve always referred to ‘dismissal and re-engagement’ when there is an alternative version that actually rhymes!) is not doing so in a legal vacuum. It has to weigh its need to make the change with the risk it faces of unfair dismissal claims and its obligations to consult employee representatives. It is not something to be done casually or on a management whim. When manifestos come to be written, I doubt that a total ban on the practice will make the cut.

This is, by the way, exactly the sort of topic that I will be running webinars on this autumn. The first dates are about to be announced – sign up here to be the first to hear about them.

About Darren Newman

Employment law consultant, trainer, writer and anorak
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3 Responses to Should we ban ‘firing and re-hiring’?

  1. Ian Watson says:

    Of course employees facing these tactics by their employer, particularly when the exercise involves the whole workforce, can get together and agree, en masse, to refuse to accept the ‘new’ jobs. It would be a brave employer who would trigger the dismissal and replacement of its whole workforce – to say nothing of the inconvenience and cost of defending multiple UD claims.

  2. nickmclark says:

    “you can equally easily give examples of employers who were just doing their best to protect as many jobs as possible.”

    Please do so!

    • gearalt fahy says:

      I would say that’s almost always the case, certainly with the clients i support. These are very tough times and implementing change is often essential. The alternative for example to salary reductions for all is job losses for many.

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