Back in November I wrote about the Employment Rights Bill and its proposal to ban the practice of ‘fire and rehire’. I suggested that the very narrow ‘financial difficulties’ exception that the Bill currently contains would present real problems for employers who need to make contractual changes for reasons other than an imminent financial crisis. I proposed an amendment adding ‘technical or organisational reasons’ to the grounds on which an employer could – where the need for the variation could not reasonably be avoided – impose the change through fire and rehire.

The Bill is currently in its Commons Committee stage which goes through the Bill clause by clause – although some clauses are dealt with rather more briskly than others.  The Committee has also invited written evidence from experts and stakeholders which it publishes alongside its debates. 

I was very flattered to have my argument about fire and rehire quoted in the evidence submitted by Prof Alan Bogg and Michael Ford KC. Their evidence is an absolute ‘must read’ for anyone who is really interested in the detail of the Bill and the impact that it will have. 

But they do make a couple of points about my argument that I’d like to have another go at addressing. 

Flexibility in employment contracts

In my original post I had put forward a number of scenarios where an employer might reasonably feel the need to change terms and conditions. They covered technical and organisational changes that might result from new technology or the changing needs of the client for whom they are providing a service. Alan and Michael suggest that many of these issues could be addressed by an employer without falling foul of the new provision on fair and rehire: 

“The existing law giving employers ample flexibility to run the business is likely to address many situations without the need for “fire and rehire”. The employee is also under a duty to obey lawful and reasonable instructions, and this will include instructions related to the timing and organisation of work. Employment contracts are incomplete by design, leaving employers with the necessary residual authority to change organisational practices through managerial prerogative without affecting contractual terms.” (para 26)

They quote the 1984 case of Cresswell v Board of Inland Revenue in which employees argued that it was a breach of contract for their employer to instruct them to use a computerised system for the administration of PAYE and to refuse to allow them to continue operating the system manually. The High Court held that an employee is expected to adapt to new methods and techniques introduced by the employer. While the employees in question may have suffered some loss of job satisfaction the jobs themselves remained the same – though done in a slightly different way. 

I don’t think Alan and Michael’s argument – or the Cresswell case – meets the point I was making. It is certainly true that there is an inherent flexibility in an employment contract – with the employer controlling how the work is to be done and the employee being under a duty to obey reasonable instructions. Alan and Michael say ‘this will include instructions relating to the timing and organisation of work’ but working hours are usually the subject of specific terms in the contract and are not always flexible. There is certainly no case law suggesting that an employer has the general right to require an employee working Monday to Friday to adapt to a seven day rota just because of the changing needs of the business. Such a change will almost always require a contractual variation. If no agreement can be reached, then what should the employer do?

“Financial Difficulties”

My critique assumed that the exception to the rule against fire and rehire was limited to cases involving financial difficulties threatening the viability of the business as a whole. Alan and Michael suggest that it may be wider than this. They say: 

“In circumstances where only some activities of the business are seriously affected, s.104l(4)(a) envisages that it is sufficient that the financial difficulties were affecting the employer’s ability either “to carry on the business as a going concern” or “otherwise to carry on the activities constituting the business”. This suggests that different activities of the business can be disaggregated and considered separately. If an employer is forced to change the working practices in part of its activities to retain a commercial contract to provide that service to a third party, as in Darren Newman’s first example above, that action might be justified as preventing or mitigating financial difficulties in the immediate future for that specific business activity.” (para 27)

I’m not convinced by that. If the exception were to apply whenever just a part of the employer’s activities were affected then I think the clause would refer to ‘any of the activities of the business concerned’ rather than ‘the activities constituting the business’. As I read the clause it is simply avoiding a technical argument that in some sense the business is still a going concern (perhaps because of investments it holds)  even if it has had to shut down its operations. The phrase ‘the activities constituting the business’ read to me as the whole of its activities constituting the whole of its business. 

Variation clauses

An interesting and important point that Alan & Michael make relates to variation clauses. They refer to the case of Bateman v Asda Stores in which the EAT upheld the validity of a broad variation clause tucked away at the back of a staff handbook.  They recognise that the restriction of fire and rehire practices will lead to a greater reliance on such clauses in the future and suggest that “The pre-emptive inclusion of a provision to ban such wide flexibility clauses would be a prudent step for the legislator” (para 31).

On this point I do agree. I think there is a real danger that those employers in a position to do so will start to include very wide-ranging variation clauses in employment contracts in order to avoid having to worry about their inability to force through any necessary changes in the future.  Of course, as was acknowledged in Bateman, any such clause would be subject to the implied term of trust and confidence – it would not allow employers to introduce changes that were calculated or likely to destroy the employment relationship. But variation clauses could give employers a very wide discretion to introduce changes that would otherwise have required the employees’ consent. This would certainly run counter to the intention behind the Bill.

If a restriction on variation clauses were to be imposed, however, it strikes me as even more important to provide more flexibility for employers to introduce changes driven by technological or organisational concerns or at least to clarify just what sort of situation the ‘financial difficulties’ exception is aimed at addressing. 

In reality, I doubt the Government will even consider the sort of amendments I have suggested. They would be accused of giving in to the employer’s lobby and they have already been criticised from the left for the extent to which they have done that on other aspects of the Bill. The most likely outcome is that the ban on fire and rehire will come into force in the form it currently has in the Bill.

As I pointed out in my last post, this is one of those areas of the Bill that will be ready for implementation as soon as it is passed. It does not require further Regulation to make it law, although it is possible that the Government will want to wait until it has issued a revised code of practice on the issue. Such a Code could not, however answer the key question about what the exception to the ban on ‘fire and rehire’ will actually cover.