Are fire and rehire policies unlawful?

Posted in : Seamus Says - Employment Law Discussion on 3 June 2021
Seamus McGranaghan
O'Reilly Stewart Solicitors
Issues covered: Fire and Rehire, Contract changes

Scott: There has been a lot of discussion in the media about fire and re-hire policies. Could you explain what this is and if it is unlawful and when is it unlawful if it is?  

Seamus: Okay. Thanks, Scott. Yeah, so we did do a little bit of discussion on the last webinar on fire and re-hire. I wanted to sort of explore that further because there has been further media coverage in the past lot of weeks in relation to fire/re-hire. So the formal term for fire/re-hire is dismissal and reengagement. And it's the practice really where you're terminating an employee's contract of employment, and then at the same time offering to reemploy them on different terms.

This has come about over the pandemic on a number of sort of stages, and really what you have is that employers have sought varied terms and conditions of employment contracts as a result of the pandemic. I think most employees have understood the reasons and they can understand the business reasons for variations, and most have gone with it. But again, you know, also another one has been the developments of technology and the working from home aspect. They have been able to cut out elements of the role and has resulted in variations being required from a business purpose . . . sorry, from a business need.

So, this can be for approach for an employer to adopt, but it is subject to the employer having consulted on all of the changes that they're proposing, or anything that they intend to bring in into force, and they also have to follow a fair procedure in respect to dismissal now. I sort of wanted to get into a little bit of detail about it.

And just to briefly mention that it would mean that if employees who refused the offer of reengagement, could they then bring a claim for unfair dismissal because if the employee or employer is essentially saying, "Well, I'm dismissing you under your existing contract, but I'm offering to immediately to re-hire you under new terms and conditions." If the employee refuses those, the employee could potentially claim unfair dismissal at the tribunal. But the employer would at the tribunal, "Well, we provided them with new terms and conditions immediately, and there was a failure there to take that up and litigate and that's the employees fault in relation to the dismissal."

So those sorts of arguments would apply but in the event that the employee does claim for unfair dismissal and the employers going to have to demonstrate and it's clear from the legislations, clear from the Employment Rights in the Northern Ireland order that the onus is on the employer to demonstrate the reasons for the changes as to why they require them, and that they were necessary for the business so always remember that it's not just simply an employer. An employer can't just go in and say, "I decided today to change the terms and conditions," you know, "Sign it or I'm going to sack you, and here's 24 hours to do it." That's going to be unfair. So the employer is also going to have to demonstrate that they followed a fair procedure, and that they consulted appropriately with the affected employees. And it's not automatically unfair, but the burden of proof will always rest with the employer to demonstrate that their procedure was fair.

Scott: Explain to me coming there, Seamus, because normally when you're looking at fire and re-hire, you're talking about multiple instances. There'll be a big workforce. And it meets the definition of require when it comes to collective consultation as well, doesn't it? Because it's a variation to terms which has nothing to do with the contract itself or the individual performance of the contract.

Seamus: Yes, and some people do think that collective consultation, and it relates solely to redundancies but once you're above more than, I believe it's the 20 people, you have to then enter into the collective consultation process and there are time limits in relation to how that's applied and there's certain steps, so the consultation is absolutely key to this process and you're going to have to satisfy at tribunal that you've taken those steps before you get the point where you could fairly dismiss an employee, but sorry, Scott, I interrupted you there.

Scott: No, I was going to say you've got that aspect. You've also got the point that in order to terminate an employment contract for this reason, ordinarily, it would be with notice as well. So if you've got long standing staff, that's 12 weeks' notice usually under statute, or up to 12 weeks under statute. You've also got on top of that you've got the consultation period depending how many people you've got. On an individual, if you're looking at bringing one or two people back, it's going to be very difficult to justify that it was a substantial reason for terminating that contract if it's a one-off. You know, you have to save this £2000 a year, otherwise, your business will go bust. It's not likely to happen. It's very difficult to justify from a legal standpoint, isn't it?

Seamus: Yeah, absolutely. And sort of just to go through the steps, I thought it might be helpful just if I set out the, suppose, the process as to how it might work. So, you know, we know that the fire and hire has been an issue that has arisen through the pandemic, changes the terms and conditions to avoid job losses, and redundancy. Some employers, as Mairead had said there at the start, employers did generally look at furlough and other options to avoid redundancies and part of that process was looking to perhaps vary contracts of employment. And the idea was keeping the business going during the pandemic.

And I think the law accepts that the businesses there. That's why we're employed and the business is of paramount importance, but you have to balance that with the rights of the employees. So it's the reaction to amend business needs, and things like working hours, duties, and responsibilities may have been things that employers were looking after in the pandemic.

The other thing has been that during the pandemic, it has been a quick fire, in terms of what employers have wanted to do. I don't think employers have felt that they have the time to enter into lengthy consultation periods. They feel that it's something that needs to have been reacted to quickly in order to sustain and protect the business.

The Labour Relations Agency do have a guidance note. Scott, I think I mentioned it on the last webinar. It's dated May 2020. It's bang up to date, and it was probably brought in around that time because they could foresee that the issues were going to be arising. It does say that it's specifically for agreeing and changing contracts of employment and there is a part in that in relation to fire and re-hire or looking at reengagement.

First thing first is always look at your contract of employment. What does it say? Does it permit you to vary the terms and conditions and things like mobility clauses, where you could be saying, well, you know we're closing a branch because of the pandemic. We couldn't open. We couldn't sustain it, and we now require you to work at another branch instead. And rather than having to do down that fire/re-hire, simply look at the contract and see does it permit you to make those changes. And, you know, does the contract allow the amendment? Always consider that the key elements have to be the business needs. You have to be coming at it from a business perspective. And back to your point, it can't be, "Oh, we're looking to save £2000 a year." That's not going to cut. It needs to be a substantial business reason and need. And again, you have to have consultation with the employees and hopefully the consultation will result in an agreement to vary terms and conditions of employment. Sometimes that doesn't happen. We know of the cases where there are huge issues. Argos as well have come forward and said like, "This is the threat. Play our game, we've done our best, you need to meet us somewhere, and if you don't, we'll look at fire and re-hire."

And so the key elements for that are really looking to see if there's no variation, and ability . . . or in the contract of employment, and there's no agreement, then you might be looking at dismissal reengagement procedure. And that brings about two things, dismissing the employee under their existing contract or employment, and then immediately offering them new terms and conditions under a new contract of employment.

In general, when we look at relations rather some other substantial reason is the legal requirement. Article 131B says that, again, it's for the employer to show that dismissal is fair and fair for some other substantial reason, or a kind such as to justify the dismissal of the employee holding the position which the employee has held, and then again, it's key to the employer to show that the dismissal was reasonable in all of the circumstances. So it has to be a reasonable dismissal also in Article 134B says that you determine that in accordance with equity and the substantial merits of the case.

And so there's important aspects that you have to do, if you're looking at dismissal. And it has to be within the bounds of reasonable responses. It has to be reasonable in the sense that another employer would make that decision. And also the tribunal will seek out and they'll seek the evidence in relation to all of those steps in relation to any claims of unfair dismissal.

Scott: Can I maybe come in there a bit? Just to make it clear, because we're going to move on to the staff shortage thing as well. So if it's under 20, you're going to be looking at following the 123 procedures in Northern Ireland. It's different in GB, obviously. And it's one year service, the person would have the right to claim unfair dismissal and they could work under protest and try and claim unfair dismissal anyway so you're not guaranteed about that one. If it's 20 or more, then you're looking at collective consultation on top of that, or the employer would face a protective award claim, which could be up to 90 days pay and such like per employee and all that. So it's a dangerous route to go down. It's not something that's recommended for the foolhardy. You wouldn't want to do that.

Maybe just to bring in Mairead there, we've covered some of the stuff about the about the impression. Suppose the employer has been through all that, they've been through an organisation, Seamus' point about it's going to be major. Okay. It's none of that piddly little bits here. It's almost like a last resort. You know, the back of it you looked and said, what else can we do to save costs? It's an existential threat to the business. We've got to cut wages or terms, otherwise we go under. What does that say from a recruitment point of view, if you're trying to get people into that organisation or people are looking at the organisation? I’ve been through it today, you know?

Mairead: Yeah, I mean, definitely, it's not as an absolute last-ditch approach, I mean, as Seamus said. There are legitimate times when organisations do have to take that approach where they're looking at terms and condition of the business to save the business. And I think in that instance probably, as Seamus said, if the consultation and the transparency with the employees about what is happening or why it's happening.

And I think businesses can recover. Businesses do make sort of difficult decisions and they can recover if they are transparent about the reasons behind that. I think if you look at some of the high-profile cases that are reported on the hire and re-fire, so fire and re-hire policy, should've say, it's important that sort of the company that adopted this policy get the reporting profits of X and they're getting government grants of Y. So from an employee perspective, it feels like it's a profit saving exercise, as opposed to a business protection exercise. So I think, to know from an employer brand perspective, businesses will need to be really clear if they are adopting a policy like that, what the rationale is behind it, and what the outcome will be if they didn't do that, and be really transparent with the individuals that are impacted. And then employees going forward who are looking to reapply and re-enter that organisation, so I think that communication piece and that transparency piece is really key around how the organisation is going to recover from an incident like that.

Scott: I suppose it fits in with the point that Seamus is raising which is really that you can get around it by consulting. If people agreed to it, there's no need to you know . . . you either look at whether you've got the right to do it. It happened at Legal Island in, oh 2008-09 recession if you remember it. We were looking at major losses and unlike most organisations, you get a profit and loss, everybody does at Legal Island. You get all the sales through. You know how you're doing and it was quite clear that we're doing badly and we're brought together, Barry, who owns Legal Island, goes, "You know what, we are facing big losses at the end of the year and it's either redundancies, folks, or we're going to have to take a pay cut."

Everyone, because nobody wanted to see anyone lose their job, everyone took a pay cut over the summer and the deal was if you went into four-day week, you got 80% of your wage over the summer. But if you stayed there, you still got 80% of your wage, but if we made profits at the end of the year, you've got your 20% back. All it was by hook or by crook we managed to make some profit come the end of the year. And Barry came down, he goes, "Look, if you did your . . . You're all getting your 20% back. And if you did a five-day week, you were getting double your money back."

So, you know, and again, all that goes for the culture of the organisation that, you know, we're in this together. If we do well, you'll do well. If we do badly, hey, we're all going to tighten our belts and we all did. It gives the big impression, Mairead, doesn't it?

Mairead: Absolutely. I was going to say, you know, very thankfully none of the organisations that we work with have had to apply the fire and re-hire policy, but what we have seen is lots of organisations being creative with their employees around how they can reduce costs in really difficult trading period, and retain jobs and they've done absolutely that, Scott, where they have looked at offering things like sabbaticals for individuals who perhaps would have wanted to take time out for whatever reason, or looked at a reduced working week in terms of numbers of hours or numbers of days worked, which suited the individual and the business at that time.

So they've been, sort of . . . and again this is all done with transparency and quite a lot of consultation so actually, at the end of the day, rather than being negative, the employees might have come out of it thinking that, you know, the business worked with me at a difficult time to retain and protect our jobs. And I think that has worked because it has enabled the business to sustain through a difficult period, it's kept that talent in the business, but offered a solution that was going to be right for both parties.

And the employers who've been creative in that way have come out, probably looking like heroes because they haven't had to sort of make mass redundancies, or lose jobs, or do whatever and they've really worked with their teams to make sure that they have come to a solution that's worked for both parties. So there's definitely been some businesses locally who've come out really, really strong through their processes of communication and how they have treated the individuals that have worked for them through this period and I think it's completely down to working with individuals, communicating with them and explaining the rationale and the impact of what you're doing.

This article is correct at 03/06/2021

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Seamus McGranaghan
O'Reilly Stewart Solicitors

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