Fire and rehire: Guide for employers

Organisations facing a period of operational disruption, increased supply costs and loss of revenue may need to react, adapt and effect change to their processes.   

As a matter of contract law, it may be possible to agree contractual changes to employment terms and conditions even if there is no immediate consent by negotiating agreement with employees, either through individual or collective discussion. 

But a context of heightened disruption and business challenges may mean that some employers are forced to consider 'firing and then rehiring' their employees. This may happen, for example, where an agreement can’t be reached to vary the previous terms and conditions. In these situations, employers may dismiss employees from their current contractually-agreed employment and offer new terms and conditions. This may happen where the employer feels that there is a significant risk of the business being impacted, or that the business' survival is a potential consequence. 

Employers should always look to bring about a mutual agreement to change contracts before 'fire and rehire' is considered. This may be achieved if employees understand the immediate and pressing business need for change; for example, to reduce costs and/or improve efficiency to compete, or indeed survive. 

Challenges to the understanding of fire and rehire are evolving. In September 2024, the Supreme Court reinstated an injunction which imposed that Tesco may not use fire and rehire tactics to withdraw a collectively-agreed contractual benefit, that it had previously described as permanent. 

The benefit in question was a pay uplift (retained pay) given to warehouse workers who relocated to a new distribution centre as part of a restructuring. The organisation later stated that it wanted to align pay with similar staff, and therefore offered a lump sum to give up the retained pay. Those who refused faced being dismissed and re-engaged on the new terms. Following legal action by USDAW, a High Court injunction prevented these changes - the Court of Appeal then overturned this, leading to the final appeal to the Supreme Court.   

Reasons that an employer might seek to change the contractual terms and conditions of their employees may stem from a need to: 

• reduce costs (salary/overtime and/or benefits), 
• align with competitive or comparable internal or external market factors, 
• change the actual or range of working hours, 
• introduce or amend shift patterns, 
• better-meet customer demands, 
• increase flexibility in the job role, 
• upskill or multi-skill, 
• improve operational efficiency and effectiveness to stay competitive, or,
• impose post-termination of employment restrictions to protect business interests. 

Ideally, having employees agree to any variation to their contract of employment is the best outcome. Agreement may be achieved where the business rationale for the proposed change is explained through meaningful consultation. 

Agreed variations to contracts of employment can be achieved by: 

• issuing a new contract of employment for the employee to sign, or  
• issuing a side letter to the existing contract, a copy of which they are asked to sign, or 
• an agreement with the relevant trade union, if the contract of employment permits this and it is incorporated into the contract. 

Employers should review the terms of the existing employment contract to see if there is a flexibility clause that purports to allow variation within the current terms. 

Even if there's a flexibility clause that seems to allow a change, employers may still be in breach of contract by unilaterally imposing a change. Clauses along the lines of: “The company reserves the right to make reasonable changes to your terms and condition of employment” would only suffice for minor contractual changes to be made – for example, a minor adjustment to tasks within a job role or a minor change to working hours within current business operating hours. 

A variation or flexibility clause is unlikely to be accepted in a tribunal to unilaterally impose any fundamental contractual change. Matters such as a reduction in pay, significant variation of working hours, reduced contractual benefits, and so on, are unlikely to be incorporated without the consent of the employee.

Employers must only use flexibility clauses to attempt reasonable changes, providing reasonable notice and informing and consulting employees fully prior to the change. For example, using a flexibility clause to change someone's work location may be unreasonable if the employee cannot drive or if there are no public transport options available. 

Changes are more likely to be accepted if a variation clause specifically and unambiguously anticipates the proposed change. 

Where an employee is not willing to accept the proposed changes, an employer may choose to impose it on them as a unilateral variation of contract. This is a risky process for an employer to follow for the reasons outlined below: 

Continuing to work under new terms 

If an employee is not willing to accept a proposed change, but the employer imposes it on them anyway, and the employee continues to work under the new terms and conditions without making their objections known to the employer, after a period of time (usually months rather than weeks) the employee could be deemed to have impliedly accepted the change, and it would then be incorporated into their contract of employment. Exactly how long an employee must have continued to work before being deemed to have impliedly agreed depends on the facts of each case. 

The UK Government Dismissal and Re-engagement Code of Practice recommends that employees who work under the new terms, but under protest, should make it clear (either directly or via a representative) in writing that they are doing so and be explicit about what terms they do not agree to.  

Employers should not assume that an employee has accepted a change just because they have not specifically objected. This is especially the case regarding changes that do not impact the employee for some time, such as changes to sick pay, maternity pay or redundancy entitlement. 

Example: 

In the case of Rigby v Ferodo (1988), wages were cut by 5% to prevent closure. Rigby made it known that he did not accept the reduction but continued to work for over a year. He then claimed the amount he had lost (£30 a week) during that period. The House of Lords decided there had been a repudiatory breach of contract by the employer and the employee was entitled to claim his shortfall in full. 

This case illustrates that continuing to work is not always sufficient to constitute an implied acceptance of the variation, and wages reduced without consent meant that employees were entitled to claim the full amount of their continuing loss. 

Working under protest 

If the employee works under the new terms and conditions, but under protest (in which case there is no acceptance by the employee), the employer would still be in breach of contract and the employee can issue a claim for this breach. 

If the breach of contract is sufficiently fundamental, the employee could resign as a result of the breach and claim constructive unfair dismissal.  Such a claim would go before an employment tribunal (assuming they have the necessary qualifying service) as well as pursuing a breach of contract claim. There will be a limit on the time an employee can continue to work under protest and keep open the option of resigning and claiming constructive dismissal. An employee may also claim that there has been an unauthorised deduction from their wages if the change affects pay. 

As mentioned, apart from employment tribunal claims, an employee can bring a claim for breach of contract, but in a civil court. They will have six years from the date of the breach as long as the employee has made it clear that they do not accept the terms and are working under protest. 

Refusal to work to the new terms 

An employee who refuses to work to the new terms will force the employer to either negotiate the employee's departure using a settlement agreement which will usually involve paying the employee compensation, or consider dismissal (with the employee able to bring a potential unfair dismissal claim). Alternatively, the employer may agree to allow them to continue on their existing terms. 

If the practice of ‘fire and rehire’ is engaged then the employer would be aiming to vary the terms and conditions of employment by first firing the employee (that is, dismissing them following a period of meaningful consultation), followed by rehiring them by offering new and revised terms and conditions. If an employer believes there is a serious and pressing need to make such a change then the following Code must be followed.  

If, after extensive communication, consultation and reasonable compromise have taken place, there is still refusal to accept the changes, the following situations are examples of situations which may be considered justifiable for 'fire and rehire': 

• Where a company faces potential insolvency, through increased costs and where redundancy is not an option, as there is not a reduction in workload.  
• When there is an urgent and pressing need to reduce salary or benefit costs for business survival, in conjunction with other business wide cost-cutting measures being implemented. 
• Where the cost of contractual redundancy pay is prohibitive and would have an impact on the need to make more jobs redundant. Where the change is to reduce the level of contractual redundancy pay as a means of saving more jobs. 
• Where an employer has traditionally operated a customer service operation i.e. Monday to Friday, 9am–5pm, but through a new business contract, requires the service to also cover Saturday working. As a consequence, change in working hours cover to be rostered for five days over a six-day operation is required.
• Where a company has relied on voluntary participation in an out-of-hours “on call” roster but which places the business at risk of failing to comply with Service Level Agreements with customers. Where the change is for a contractual requirement to participate in “on call” arrangements.
• Where voluntary agreements to change terms and conditions are reached with the vast majority of the workforce, but a number of people are still resistant to the change and no other compromises can be reached. 

Managing people through changing times can be difficult. Much emphasis needs to be placed on explaining the important “whys” and “whats” of the change. 

What is also important is “how” the process is carried out. Managers and those responsible for making changes need to be considerate, empathetic and self-aware in communicating with employees and conveying their aim of seeking employee agreement. “Standing in the shoes” of employees being consulted with and having a high level of emotional intelligence can go a long way to achieving change in the most effective way. 

Ultimately, employees may not have wanted or be happy with the outcome of a process that changes their terms and conditions. However, if they understand the reasoning, and believe the manner the process has been carried out was fair, respectful and aligned with the values of the business, there is an improved chance of being able to move forward with the new changes in a better, more open and transparent employee relations climate and an improved organisation culture for the business. 

A customer service team in a large, family-owned insurance company has good, long-serving employees, many of whom have become friends over the years. They have contracts of employment that have not been reviewed or updated for many years, and traditionally all employees in the department have a contractual clause entitling them to a mid-morning paid break at 10.45am and a mid-afternoon paid break at 3pm – both 15-minutes in duration – when they leave their offices en masse to go to the canteen. 

This has started to become more problematic for the company, as having all employees leave for the 15-minute break at the same time is causing serious operational issues, especially in customer-facing teams, where the allocated times can be peak times for customer queries. 

In the past, the directors have tried to discuss their concerns with employees. They’ve proposed removing the two 15-minute paid breaks, buying out the benefit by increasing employees’ salaries by 30-minutes per day and installing coffee machines in the office. This allows employees to take reasonable time to enjoy a coffee at their desk on an ‘as-and-when’ basis based on operational need, rather than having all employees on break at the same time. Unpaid lunch breaks of 30 minutes would continue as per the contract. However, employees did not accept the proposals in the past and, as a result, the employer took no further action at the time, since new orders were coming in and it was ‘never the right time’ to risk experiencing what might turn into a conflict. 

The situation is now having a direct impact on service-level agreements and is causing customer complaints. Also, the directors have considered the cost of the outsourced catering company they engage and determined that, while they still plan to cover the costs for proposed lunch breaks, a better solution would be to install and provide free coffee machines in the offices and not use the canteen for morning and afternoon breaks. 

The directors now propose to commence a formal consultation process to consider the removal of the fixed paid breaks and stop the serving of drinks during the morning and afternoon. 

A logistics company employs a number of drivers on traditional Monday to Friday, 9am to 5pm contracts of employment, working 37.5 hours per week. 

Given the cyclical nature of their work, with peaks and troughs each week and at different times of the week, the company is finding that it is frequently asking drivers to work overtime on some days and weeks but at other times not having enough work to give them. As a result, it’s failing to meet service levels at their peak times and the cost of the overtime payments is reducing the margins it makes. 

The drivers are happy with the current arrangements. They have defined fixed hours, regular and expected premium-rate overtime payments on the days known to be busy that they agree to work when asked and can expect to be paid for idle hours when there is no or reduced work. 

The directors have had a shock when they have costed out the chargeable work and the amount they are paying in overtime premiums, plus the cost of no productivity on some days, where they are still paying for the time. 

They’ve looked at the work demand, and identified that if they were to introduce a new working pattern of 150-hours to be worked over a four-week reconciliation period with a window of operation between 7am and 7pm Monday to Friday (which still equates to an average of 37.5 hours per week over four weeks, though some weeks would have more hours and other less), they would be able to roster the working hours for longer days on the busy days. This means there would be more rostered non-working days for when delivery work was known to be quieter, enabling the drivers to have guaranteed days off while still receiving the same contractual pay. 

By proposing to continue paying monthly – based on annual salary divided by 12, but now with 13 reconciliation periods of four weeks rather than 52 reconciliation periods of one week – the company would reduce its overtime costs. The directors expect that the drivers may not accept what is being proposed and would be happy to continue with the current arrangements. However, the directors have forecast that to continue following this practice would, in a few months, cause the company to make losses.