The term “fire and rehire” is a controversial approach that some businesses – including retailers – take when they decide to change the terms and conditions of employees’ contracts of employment.

One of the many reasons to pursue this is to harmonize employees’ contracts across the business or to remove clauses that are undesirable to the business. Yet throughout the Covid-19 pandemic, fire and rehire tactics have become more commonplace.

Many retailers have witnessed a decline in their revenue during the pandemic, leading them to make redundancies or furlough their employees to save on costs. Each case is different, but when it comes to fire and rehire, employers might want to reduce staff pay, or reduce holiday allowances, change shift patterns – and even reduce the breaks staff are allowed.

Despite the criticism, it attracts, fire and rehires are not a new tactic. Nor is it illegal.

In May, the GMB Union found in a Survation poll that 76 per cent of Brits have said that fire and rehire should be made illegal. Meanwhile, 67 percent said they would be less likely to buy goods or services from a company that used fire and rehires tactics on their staff.

During an Opposition Day debate on January 25, business secretary Kwasi Kwarteng told the House of Commons that the government had asked the Advisory, Conciliation and Arbitration Service (ACAS) to conduct a review of the practice of fire and rehire in businesses.

According to a June report by ACAS, there are increased concerns that once furlough and Covid-related business support initiatives end, then fire and rehire may become more extensively used.

fire and rehire
Fire & rehire takes place when employers change the terms of employees’ contracts.

“Fire and rehire practices have been used for many years and predate the pandemic,” ACAS chief executive Susan Clews said.

“Some of the participants told us about the business challenges of Covid-19 and how the use of fire and rehire can help reduce redundancies.

“Others believe that the practice is unacceptable and that the pandemic has been used as a ‘smokescreen’ to diminish workers’ terms and conditions.

“We will take up the government’s request to produce further guidance that encourages good workplace practices when negotiating changes to staff contracts.”

High-profile retailers, such as Tesco, Argos, and Clarks, have recently used the fire and rehire approach to change their employees’ terms and conditions.

Earlier this year, Tesco revealed that it was planning to challenge a court’s decision after union bosses from Usdaw won a case against its fire and rehire strategy.

Usdaw won an interdict in the Court of Session in Edinburgh that banned Tesco from moving some staff at its Livingston distribution center onto a new contract. This would result in them losing between £4000 and £19,000 per year.

Tesco is legally prohibited from unilaterally withdrawing entitlement to retained pay and/or terminating the contract in order to re-engage workers on new terms, which do not include retained pay.

More recently, Usdaw criticized Argos’ use of fire and rehire tactics, stating that over 700 staff have been given the choice of accepting cuts to pay and conditions or losing their jobs.

fire and rehire
Usdaw won an interdict banning Tesco from moving staff at its Livingston warehouse to a new contract.

and just last week, more than 100 Clarks staff members were considering strike action amid reports that the footwear retailer was set to carry out a fire and rehire process.

The news came after Clarks underwent a major restructure through a CVA process earlier this year, which entailed rent negotiations, some store closures, and a change of leadership and company ownership.

According to specialist solicitors Pure Employment Law, fire and rehire may be lawful, but it is a strategy that employers should only take on if they have an understanding of the risks and pitfalls involved.

The current climate caused by the pandemic has meant that many businesses have seen a dramatic fall in their income. Several have been forced to make savings, and for most businesses employment costs are the biggest single overhead. Many have had to make redundancies, and approximately 9.6 million employees have been furloughed in the past 12 months.

“Whilst fire and rehire is a drastic step if it is used properly it is a legitimate step to take,” said Barry Stanton, partner and head of employment at law firm Boyes Turner.

“If an employer faces an unprecedented downturn and needs to save costs it might explain to the workforce it needs to save costs and seek agreement to a reduction in pay.

“Ninety percent of the workforce may agree, seeing the reduction in pay as a better option than redundancy.

“The alternative to cutting pay maybe to make employees redundant.”

Richard Ryan, the employment law barrister at law firm Parklane Plowden, told Retail Gazette that the pros of fire and rehire for any retailer are commercial – it allows the business to create savings, which may be required if the retailer is facing financial difficulty.

“Fire and rehire as a strategy should always be viewed as a last resort”

“The cons are the disruption caused by implementing the changes and potential impact on employees,” he said.

“A further potential complication involves redundancy entitlement; it may be that the proposal amounts to a redundancy. In theory, an employer could be faced with all its staff wanting their redundancy entitlement and to leave their employer.”

Daniel Stander, the employment lawyer at law firm Vedder Price, argued that fire and rehire should always be viewed as a last resort.

“There may be solid business reasons why an employer may need to consider dismissing employees and offering them re-engagement on new terms,” he said.

“Taking the decision to dismiss and re-engage is not without significant risk, from both a legal and reputational perspective.

“In the highly publicized Clarks and Argo's cases highlighted, an Employment Tribunal would take a number of factors into consideration when assessing the fairness of the dismissal, including the trade union’s position on the changes the employer was seeking.

“There is likely to be a PR aspect to also consider, given the proliferation of ‘naming and shaming in the social media age, therefore any business will want to ensure as best it can that its employee relations strategy is strong.”

Fire and rehire as a strategy has been around for many years, although the tumultuous last year has arguably affected the retail sector, such that many more retail businesses have had to consider reorganizing their business models in order to survive than any other time in post-war Britain.

According to the House of Commons Library, the practice of fire and rehire – also called dismissal and re-engagement – occurs when “an employer dismisses an employee and offers to rehire them on new terms”.

The new terms are usually more favorable toward the employer. The practice is not unlawful in and of itself.

However, as it does involve dismissal, the employer might face claims for unfair dismissal. If there are sufficient numbers of employees involved, the employer will also have a legal duty to undertake collective redundancy consultations first.