Fire and rehire

The Labour Party promised to lay an Employment Rights Bill (the 'Bill') before Parliament in its first 100 days in power and it did so on 10 October 2024.  It is the most ambitious set of employment law reforms for more than a generation and it is difficult to think of an area of employment law that will be untouched.  

Whilst the Bill is very lengthy, much of the detail has yet to be worked out.  The Government expects to begin consulting on the reforms in 2025, anticipating that the majority of them will take effect no earlier than 2026.

The Government proposes to use the legislation to tighten up on 'fire and rehire' practices by making a dismissal for refusing to accept a contract variation an automatic unfair dismissal. Here, we consider the implications for employers.

The provisions in the Bill relating to the 'fire and rehire' of employees (who refuse to agree a change to their contract of employment) are being introduced against the backdrop of the P&O Ferries scandal.  As such, it is perhaps unsurprising that the Government has taken a robust stance on them.  It has also made an important change on the related issue of collective redundancies, with other changes to be the subject of consultation.  

The Bill includes a new provision which makes it automatically unfair to dismiss an employee if the reason or principal reason for dismissal is:

1. that the employer sought to vary the employee's contract of employment and the employee did not agree to the variation; or
2. to enable the employer to employ another person (or re-engage the employee) under a varied contract of employment to carry out substantially the same duties as the employee prior to being dismissed.

This is a radical shift in approach - for example, it will apply where an employer decides to dismiss and then wait for a period before hiring a replacement employee, or where an employer seeks to change just one employee's contract.  This goes far beyond the P&O situation. 

The above is subject to a narrow exception if:

1. the employer's reason for the variation is to 'eliminate, prevent or significantly reduce, or significantly mitigate the effect of any financial difficulties' that (at the time of dismissal) were affecting, or were likely (in the immediate future) to affect the employer's ability to carry on the business as a going concern, or otherwise to carry on the activities constituting a business; and
2. in all of the circumstances, the employer 'could not reasonably have avoided the need to make the variation'.  

The above exception is therefore limited to financial difficulties (not others) in limited circumstances (which are effectively urgent and akin to those of insolvency).  It seems likely that it will be interpreted very narrowly by Employment Tribunals.

Even if the exception applies, the Employment Tribunal must still consider whether the dismissal was fair or unfair, and the Bill includes a mandatory list of factors for them to consider, including any consultation carried out by the employer with the employee about varying the employee's contract of employment, and anything offered to the employee by the employer in return for agreeing to the variation.    

It is unclear whether compensation could be reduced for an employee's failure to mitigate their loss where a varied contract of employment they have been offered but refused constitutes suitable alternative employment.