In this latest article in our series on the Employment Rights Bill, we consider one of the most controversial practices of recent years.
In 2022, around 800 workers at P&O Ferries were dismissed in a bid to massively reduce staff costs, with replacement labour being sourced from agencies, including some of the former employees.
The incident produced widespread condemnation and while P&O may be the most notable recent example, they are not alone, as this BBC article covered Tesco losing a legal case shows.
The laws around firing and rehiring employees were already undergoing reform, including the introduction of a new statutory Code of Practice in July 2024.
However, the current government has resolved to abolish the practice of terminating an employee's contract and re-engaging them on new, less favourable, terms – having described it "the scourge of fire and rehire".
The Bill aims to significantly restrict an employers’ ability to use this approach. It proposes to make any dismissal to enforce key contractual terms such as pay, hours of work, pension and rights to time off automatically unfair on two potential grounds: (1) if the reason for the dismissal was that the employee did not agree to the proposed variation of their contract, or (2) because the employer intended to employ someone in substantially the same role on the varied terms.
The distinction around a ‘key contractual term’ is important. If a dismissal results from the employer trying to vary a term that does not fall into that category, it will not be automatically unfair. However, when deciding if the dismissal was fair, an employment tribunal will consider the reason for the variation, any individual or collective consultation, and anything that the employee was offered in return for the change.
What this means is that employers need to remember tribunals can take into account a variety of factors and that discretion will play a part in any judgements on these particular aspects.
The Bill will also look to ban “fire and replace” scenarios where employees are dismissed and replaced with self-employed contractors, workers, agency workers or any other non-employees who carry on substantially the same work.
Conversely, the Bill is set to allow dismissal and re-engagement to continue in very limited circumstances where the employer is in financial difficulties affecting their ability to carry on business as a going concern. In these circumstances, the newly created Code of Practice from 2024 will continue to apply.
A consultation is expected imminently on the proposals with a view to bringing legislation into force in October 2026. We will bring more insight on what the law may say once it is available, including what employers or others should consider if responding to the consultation or preparing for the government’s likely course of action.
