[Now updated – see below]

In the last few months I’ve been going around the country talking to people about the Employment Rights Bill and what it means for employers. One of the central points I have been making is that when it comes to the provisions on fire and rehire the Government does not seem to appreciate the real-world implications of what it is proposing. Their view seems to be that fire and rehire is some underhand tactic used by bad employers – with perhaps some exceptions when the employer is facing a financial emergency. 

I think this fundamentally misunderstands how issues of fire and rehire actually arise. As the Bill reaches its closing stages in Parliament I want to have one more go at explaining why and I would like to illustrate my argument by talking about a particular situation – relocation. We have seen that the Government is planning to relocate parts of the civil service away from London and towards other regions of the UK. How does that work?

What does the contract say?

When an employer asks their lawyers to advise on relocating staff the starting point is always going to be the same – what does the contract say? The contract of employment will have to deal with the issue of where the employee can be asked to turn up to work. In a relocation there are two options. Either the contract allows the employer to require the employee to relocate or it doesn’t. If the contract says something along the lines of “you may be required to work anywhere in the UK’ then that means that the employee can be told that the job is moving and they are required to move with it. The way in which the employer goes about that is going to be subject to implied terms. For example in United Bank Ltd v Akhtar [1989] IRLR 507 the contract allowed the employer to require Mr Akhtar to move from Leeds to Birmingham but that was done in such a peremptory way – he was literally given less than a week’s notice of the move – that he was able to resign and claim constructive dismissal. Nevertheless, providing the employer does not breach the duty of mutual trust and confidence, the employee can be required to move and dismissed for failing to obey a reasonable instruction if they refuse. 

But let’s imagine that the contract does not allow the employer to move the employee. Suppose the contract says ‘you will be based at our office in London but may be asked to relocate to another office within a reasonable daily travelling distance’. So you could move your office from Westminster to Canary Wharf and employees would be expected to accommodate that. But what you could not do is tell them that they have to relocate to Darlington. So if the employer has decided on that sort of relocation, what should it do? 

Agreeing a change

One first step would be to just ask the employees to agree to the move. That would involve a variation of their contract so that it placed the employment in Darlington rather than London. If an employee agrees then things are very straightforward, Of course in most cases they are likely to take some persuading. There may be a conversation about salary levels, relocation expenses or other sweeteners that the employer can throw in. That negotiation may be individual or it may be collective and part of a collective bargaining process. Either way we will eventually get the end position where either an agreement is reached or it is not. And, of course, if there is an agreement then the employer can go ahead with the move. 

But it is just possible that some people will not be open to persuasion and will prefer to stay in London rather than move to Darlington. There is no accounting for taste and those individuals will – unless they are covered by a collective agreement incorporating the change – have a contractual right to work in London that cannot be unilaterally varied by the employer. What is the employer to do?  

One option would be to cancel the move. Instead of relocating to Darlington it can decide to stay in London on the basis that its employees have a contract that ties them to that location and there is nothing that can be done. 

Not many employers will be keen on that option. If their lawyers told them that they had to abandon the whole project they would be likely to look for other lawyers. Those new lawyers will then advise that if the contract that is currently in place is no longer fit for purpose then the employer can terminate it and issue a new one with the desired location written into it. 

The fire and rehire option

Virtually all employment contracts can be terminated by the employer giving notice. The notice that the employer must give depends on the terms of the contract, subject to the minimum notice periods (basically one week per year of service to a maximum of 12 weeks) set out in the Employment Rights Act 1996 (S.86). So if the employer gives that notice to the employee then the contract will be terminated. The employee can then either accept the offer of a new contract and move to Darlington or can refuse that offer and their employment will come to an end. 

If things get that far then whatever choice the employee makes, they will have been dismissed. A dismissal is the termination of a contract of employment by the employer. Its immediate replacement by a new contract – even with no gap in service – does not take that dismissal away. That means that the employee can claim that the dismissal is unfair even if they choose to continue working for the employer. Compensation would be limited, however,  as the employee will still be getting paid a salary. So we would expect that most unfair dismissal claims would be brought by people who are not prepared to move and are now without a job.

Note that the employer in this case did not set out to fire its staff. That was not the plan. What it wanted to do was move everyone to Darlington – but it finds that it has some employees who are not prepared to agree to that. 

The current rules on fairness

In an ordinary unfair dismissal claim the employer must prove to the Tribunal what the principal reason for the dismissal was and show that it fell into one of a number of what we call ‘potentially fair’ categories. These are conduct, capability, redundancy, statutory ban and – famously – ‘some other substantial reason of a kind capable of justifying the dismissal of an employee holding the position which the employee held’ – see S.98(4) Employment Rights Act 1996. We call this last reason SOSR and often pronounce it “sozruh”. I don’t defend this, I am merely giving information.

How do we determine the principal reason for dismissal? As you might expect for such a fundamental question this was dealt with early in the case law. In the Court of Appeal case of Abernethy v Mott Hay and Henderson [1974] IRLR 213, Lord Justice Cairns said

 “A reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him which cause him to dismiss the employee.”

So when we look at the reason for the dismissal we are looking at the facts which caused the employer to dismiss – not some overarching or longterm objective that the employer might have had in mind. 

In our example the reason the employer has dismissed the employee is because the employee refused to agree to move to Darlington. Had the employee agreed to that there would have been no dismissal. It is the employee’s refusal that is the principal fact operating on the mind of the employer at the time of the dismissal. The employer might have wanted to move to Darlington to better serve the community or to allow it to sell its expensive London headquarters and move somewhere cheaper. But neither of those factors could be described as the principal reason for dismissal. 

Refusing to agree new terms and conditions is well established as a reason that falls within the SOSR category as being capable of justifying dismissal. Whether the dismissal is actually fair or not will then depend on a number of factors including the strength of the business case put forward by the employer and the way in which it arrived at the decision to dismiss – its conduct over the course of the negotiations and the extent of the consultation that took place before the decision to dismiss was made. The fact that other employees have agreed to the change is another relevant factor (See St John of God (Care Services) Ltd v Brooks and others [1992] IRLR 546 EAT). If there are 100 employees and 90 of them have agreed to move, it would seem reasonable for the employer to say that the remaining 10 employees cannot be allowed to derail the whole process. That calculation might be different if all of the employees had vehemently rejected the change. 

All of these considerations are weighed up as part the of the overall test of whether or not the dismissal fell within the range of reasonable responses available to an employer. That test can be criticised for giving employers too much of an easy ride in justifying dismissal, but it is a well established cornerstone of the law on unfair dismissal (and a great name for a blog!). The result is that the employer in our case would be advised that provided they followed a reasonable consultation process, the dismissal of employees who did not agree to move is likely to be fair. 

Fire and Rehire under the Employment Rights Bill

I think it is quite clear that the Employment Rights Bill will make a dismissal in these circumstances automatically unfair. Clause 26 of the Bill inserts a new ground of automatic unfair dismissal and says that a dismissal will be unfair if the principal reason for it is that the employer sought to vary the employee’s contract of employment, and the employee did not agree to the variation.

In our example the employer has clearly sought to vary the contract of employment and the employer has dismissed them because they refused to agree to the variation. The only way the dismissal can be fair is if it falls within the very narrow ‘financial difficulties’ exception that I have written about in an earlier post.

So, barring an imminent financial catastrophe that will put the whole business at risk, the employer cannot fairly dismiss an employee who refuses to relocate. Such an employee will be entitled to full unfair dismissal compensation. There would be no deduction in the amount of compensation to reflect what would have happened if the employer had behaved reasonably (we call this the Polkey deduction) because the reasonableness of what the employer has done is not the issue. The Employment Rights Bill makes a dismissal for refusing to agree to a variation in a contract of employment automatically unfair no matter how reasonably the employer has behaved. Indeed that is the whole point of the provision.

Another option the employer might have is to move to dismissal without seeking the agreement of the individuals concerned. They could announce that everyone will be given notice of dismissal and encouraged to accept new contracts reflecting the new location. The dismissal would not then be for failing to agree to a variation because the employee would not have been given the option of doing so. 

A brief diversion into collective consultation…

These dismissals – assuming that there were 20 or more of them –  would trigger the collective consultation requirements under S.188 of the Trade Union and Labour Relations Consolidation Act 1992. This is because the dismissals would be for a reason not related to individuals concerned (see S.195) but because of the organisational change that was being made. Under S.188 employer would have to consult employee representatives about ways of avoiding the dismissals or mitigating their effects and would have to begin that consultation at least 45 days before the direct dismissal took effect (assuming that 100 or more employees are being dismissed).

If the employer failed in its duty to consult, the penalty could be severe. The award that the Tribunal can make – its called a ‘protective award’ – to each dismissed employee is 90 days’ pay (S189(4)). The employment Rights Bill increases that amount to 180 days (Clause 28). I have no problem with that. The P&O case showed that employers may currently see a 90 day award as a price worth paying to avoid a consultation process, so I am all for trying to increase the incentive to behave lawfully. 

… and back to unfair dismissal

But there would still also be the question of unfair dismissal. Suppose the Employer’s consultation was an absolute model of reasonableness. There was extensive engagement with the unions on all aspects of the move including its rationale and its implications. Suppose the employer did everything it could be expected to do to accommodate the concerns raised in the process and did so – as the law requires – with a view to reaching an agreement. And suppose at the end of that the employer was still proposing to proceed with the move and issued the notices of dismissal to the individuals involved. 

What is the reason for dismissal in this scenario? What facts are operating on the mind of the employer as it decides to dismiss? It is not the employee’s refusal to agree to the variation because the individual employees have not been offered the chance to agree or not to agree with the proposal. In broad terms you would say that the employer is terminating contracts because it wants to relocate to Darlington. It no longer needs employees in London, but needs them in Darlington instead. Under the current law I think we would say that the principal reason for dismissal is redundancy – but the employer would probably plead ‘some other substantial reason’ as an alternative just to be on the safe side. 

But now let’s look at what the Employment Rights Bill says. As well as making it automatically unfair to dismiss an employee for refusing to agree to a contractual variation the Bill also says that the dismissal is automatically unfair if the principal reason for the dismissal is

“to enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same duties, or substantially the same duties, as the employee carried out before being dismissed.” (Clause 26)

Well isn’t that precisely the situation here? The employee is dismissing the employee in London to enable it to recruit a new employee (or rehire the same one) in Darlington. That will be employment under a varied contract of employment because the term relating to the place of work will be different. But the duties of the employee will be the same – it is the same job. There is nothing in the Bill that lets the employer off the hook if the only change that is being made to the contract is the place of work.

Here is a central problem I think. Those advocating for the fire and rehire provisions in the Bill are thinking of an employer seeking to impose less favourable terms and conditions. But the Bill does not require the new terms to be less favourable for a dismissal imposing them to be automatically unfair. They may be thinking of an employer cutting pay or benefits – but the Bill does not require the variation to relate to these issues. I have repeatedly encountered those supporting these provisions arguing that reasonable employers have nothing to fear from them. But by definition, the reasonableness of the employer’s actions is taken out of the equation when making fire and rehire automatically unfair. Unreasonable employers already risk a finding of unfair dismissal. It is precisely the reasonable employers that this new category of automatically unfair dismissal targets. 

So when the Bill comes into force, what is an employer seeking to relocate its business supposed to do? Does it just accept that any dismissals will be unfair and simply take that cost into account when budgeting for the move? Maybe. When P&O sacked a large number of its workforce, it knew that what it was doing breached employment law. It knew that the dismissals would be unfair by any ordinary standard and it knew that it was acting in breach of its obligations under S.188. It took the choice to do it anyway because it made economic sense. The increase in the protective award might make employers in a similar situation think twice. Also, if the dismissals were automatically unfair then the compensation would be higher because there would be no Polkey reduction available reflecting the possibility of dismissal being the outcome of a fairly conducted process. As it happens, the P&O dismissals would not have been automatically unfair under the Employment Rights Bill proposals because those employees were replaced with agency workers rather than employees – but let’s leave that gaping loophole aside for now. 

I would be interested to know whether the Government accepts that any dismissals that result from the relocation of civil service departments way from London should be treated as being automatically unfair and whether civil servants who choose to remain in London should be entitled to compensation reflecting that fact. If so, do they think that is a fair burden to place on other employers who might also be considering a change in location?

Last chance to amend the Bill

These problems exist because the Bill does not allow for any exceptions other than financial difficulties affecting the viability of the business. I suggested in a previous post that an amendment incorporating ‘technical or organisational’ reasons for the variation would help. That would certainly encompass the sort of organisational change that involves a relocation. If the Government think that an employer should be allowed to relocate its business when it has a good reason for doing so then perhaps they might consider Amendment 118 proposed by Lord Sharpe of Epsom, Lord Hunt of Wirral and Baroness Fox of Buckley. This would add the following: 

“(4A) Subsection (1) does not apply in relation to an employee if the employer shows that the variation is required to address technical or organisational reasons.”

I should stress that as far as I am aware, it is purely coincidental that this amendment is similar to my proposal. I think my suggestion was a fairly obvious one and the phrase ‘technical or organisational’ in relation to a reason for dismissal is one that all employment lawyers will recognise (its in TUPE). 

I don’t propose that the Government should do anything as extreme as accept an opposition amendment. But they could perhaps consider whether the thrust of the amendment is useful and revisit the issue at the House of Lords Report Stage. At the very least, I would like to hear a Government minister properly address the question in Parliament. Too much of the debate around the Employment Rights Bill has been vague and failed to get to grips with what the Bill actually says. While some measures on the Bill can be kicked into the long grass while consultations begin on the complex regulations that will be needed to enact them, the provisions on fire and rehire could be in force by Christmas. I hope in the few weeks remaining of the Bill’s passage the Government really faces up to what banning ‘fire and rehire’ actually entails. 

Update 22/5/25: The Government’s response

The House of Lords Committee stage has now approved the fire and rehire provisions in Clause 26 without amendment. Here is what Government Whip Lord Leong said in setting out the Government’s position on widening the exception:

“When a change in contract is essential and the employee will otherwise become redundant—for example, due to a move in location—or where the changes are necessary to reflect a change in the law, the employer will still be able to explain to the employee when proposing these changes. However, such changes should always be a result of meaningful consultation. Employers and employees must reach mutual agreement, allowing both sides to understand and assess the impact of the proposed changes. Open dialogue is key.”

Lord Leong, 21 May 2025 Hansard Col 345

So the Government is insisting that the only way of securing a change in location or even (oddly) ‘to reflect a change in the law’ is for employers and employees to reach a ‘mutual agreement’. There was no further information on what the employer should do if agreement cannot be reached. It seems as though the Government’s plan is to push this measure through without compromise and deal with the consequences later. Ho Hum.