Acas guidance sounds a note of caution to employers on ‘fire and rehire’

Background

The practice of “firing and rehiring” means changing employment terms by way of dismissal and re-engagement (or by threatening it). In October 2020, the government reacted to increasing public interest in the issue during the pandemic by asking Acas to conduct a fact-finding investigation. As we wrote about in June, Acas published its report this summer. In response, the government asked Acas to produce guidance to help employers explore all other options first before considering fire and rehire.

Acas has now published its guidance. Importantly, employees and their representatives cannot bring legal claims based on employers failing to comply with it. Unlike a failure to comply with the Acas Code of Practice on disciplinary and grievance procedures, a departure from this guidance does not attract any potential increase in compensation. Employers that comply with the guidance are nevertheless more likely to be able to demonstrate that any dismissals that they made were fair.

Summing up the new guidance, the Chief Executive of Acas stated:

"Our new advice is clear that fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations. Employers should thoroughly explore all other options first and make every effort to reach agreement with staff on any contract changes. Organisations that consult with their workforce in a genuine and meaningful way about proposed changes can help prevent conflict at work and stay within the law."

Key points made in the Acas fire and rehire guidance

Initial considerations

Employers should first consider whether they do in fact need to change employees’ employment terms. For example, there may be better ways to save costs if that is the rationale for the proposed change. This reflects the risk that changing terms may involve hidden costs, such as damaging workplace relations, defending legal claims, employees’ disengagement and industrial action.

Information and consultation

A key theme of the guidance is the importance of information and consultation with employees and their representatives. Information and consultation are distinct processes. Employers should undertake both separately even if the processes are inherently related.

An information process consists of an employer providing details about the proposed change to enable employees and their representative to understand it. It allows the recipients to consider and reach an informed view on what the employer is proposing. The exact process that an employer should follow will vary depending on the circumstances, including whether there are existing employees’ representatives, such as officials of a recognised trade union. The guidance offers a handy checklist of the information that employers should consider providing.

In contrast, a consultation process is a two-way process. It consists of an exchange of views and dialogue based on the information already provided and often with a view to reaching an agreement. It enables employers to benefit from employees’ insights and, so far as is possible, to maintain good working relations by ensuring that employees feel that their views have been taken into account. Employers should give genuine and conscientious consideration to the views of employees and their representatives, and provide them with enough time and further information as necessary.

Implementing changes

If an employee agrees to an employer’s proposed change then it is important that this is properly documented in writing. However, in the absence of agreement, it is important for employers to continue to seek a negotiated outcome before considering the more extreme tactic of unilateral action. The guidance includes tips on how an employer can continue seeking agreement, such as exploring the change being introduced gradually, only lasting for a temporary period or being appropriately compensated for by another more beneficial change.

An important tension nevertheless exists in the guidance. On the one hand, the guidance says that an employer should never present a potential outcome to employees as a threat about what it will do if they do not accept its proposed change. This is partly because of the risk that any such acceptance may be regarded as given under duress, and therefore unenforceable. On the other hand, the guidance recognises that there will be occasions when an employer may introduce change by unilaterally imposing it or by giving notice and offering new terms of employment, in which case it is important that an employer introduces any proposal to dismiss and rehire during the negotiations, and before proceeding with that proposal.

This tension reflects the polarised positions previously expressed to Acas by trade unions and employers and it is apparent throughout the guidance. For example, one section of the guidance points out that, if employees or their representatives “feel” that it is still possible to reach a negotiated agreement, it’s likely they will view a proposal to dismiss and rehire as a threat. It stops short of acknowledging that such a feeling may be unreasonable, but elsewhere it refers to the need for employers to make “all reasonable attempts” to reach agreement before proceeding with firing and rehiring. This reflects the often-different perspectives of those involved in the process of changing terms.

In reality, it is difficult for third parties, such as Employment Tribunals, to judge the commercial appropriateness of an employer’s business decision about the need to change terms. Any test requiring employers to satisfy employees’ representatives also runs counter to the thrust of the Supreme Court’s recent decision (published immediately before the Acas guidance) that trade unions do not enjoy a veto over changes to employees’ terms if it is not possible to reach a negotiated outcome.

Implications for employers

From a legal perspective, this new guidance does not change anything for employers. It simply provides a helpful reminder of existing legal obligations and best practices.

This guidance nevertheless reflects both the ongoing sensitivity surrounding employers’ use of the practice of fire and rehire, and also the government’s approach of taking little concrete action over it. On the one hand, the government has indicated that it condemns the practice as a “bully-boy” tactic and Boris Johnson has described it as “unacceptable”. On the other hand, the guidance itself has no legal effect, and the government recently blocked a private member’s bill that would have involved tougher regulation.

The ongoing sensitivity, however, remains a real practical issue for employers, who should bear in mind that:

• An employer’s use of fire and rehire may damage not only their ongoing industrial and employee relations, but also their reputation.
  
  
• It is imperative to consider the timing of introducing any proposal to dismiss employees and re-engage them on new terms. If an employer is considering dismissing 20 or more employees at a single establishment, it needs to consider when it is legally necessary, and tactically best, to start collective consultation in light of the wider commercial imperatives to change terms.
  
  
• Following the Supreme Court’s decision in the Uber case on the underlying purpose of employment legislation, employers may start to see increased scrutiny by Employment Tribunals of their decision to dismiss employees for refusing to accept new terms, and in particular whether they had “some other substantial reason” that was sufficient to justify the decision to dismiss.