Fire and rehire, also known as dismissal and re-engagement, is a practice that’s been around in the business world for a long time.
It involves companies dismissing an employee, and then immediately rehiring them. With the ‘new’ job, comes a new contract which will generally contain less favourable terms for the staff member in question.
Yulia Barnes, Founder and Managing Director of boutique commercial law firm, Barnes Law Associates highlight a recent example which made headlines was that of union Usdaw who won a case against Tesco in the Supreme Courts. The case centred around three of around 50 distribution centre employees affected by ‘fire and rehire’ plans. Staff were asked to accept a one-off lump sum instead of the higher pay they’d been awarded a number of years previously to relocate; otherwise they’d face being dismissed and rehired without the increased salary.
Usdaw argued the workers’ contracts stated the pay increase was permanent, leading the judges to conclude Tesco should have set down an end date for the deal had it intended the pay rise to be temporary, and should not be able to fire and rehire whenever it ‘suited [their] business purposes to do so’ (BBC).
A controversial strategy
Naturally the wider public only becomes aware of fire and rehire strategies when they appear before the courts or in the media, as in the case of Tesco’s distribution centre workers. But, given employees are almost always rehired on a less preferential basis, the practice has been controversial for almost as long as it’s been around.
And it’s more common than perhaps thought: one Trades Union Congress survey found 9% of workers had been told to re-apply for the same jobs under worse terms between March 2020 and January 2021 (although it must be noted this was in the midst of the Covid pandemic which severely impacted almost every business in the UK).
While the number of people affected in the last couple of years may well be much lower, this spike in firing and rehiring brought it to the attention of the public – and of successive Governments who’ve introduced measures to curb the strategy.
What are the rules around firing and rehiring?
A code of practice was issued by the previous Government in the summer of 2024; whilst it does not seek to eradicate dismissal and re-engagement, it does set out the alternative options employers should consider, stating the strategy should be a last resort. Failure to follow the code doesn’t automatically mean an employer will face action but, should a staff member take the matter to a tribunal and win, their compensation can be raised by 25% if they can show non-compliance by their employer.
This is set to be replaced by the current Government’s Employment Rights Bill, which will see fire and rehire strategies deemed as unfair dismissal unless the employer can prove they had no other option except to propose a contract variation, and the reason behind it was to reduce or eliminate the impact of severe financial difficulties which were affecting the likelihood of the business being able to continue operating (UK Parliament).
As it stands, there is no specific definition of ‘financial difficulty’ set down in the Bill – which is over halfway through the Parliamentary approvals process – but this may well have been made clearer by the time it officially comes into law, likely not before autumn 2026.
What are the alternatives?
Clear communications with employees, a set period of negotiation and a willingness to be open to suggestions are necessary when changes may need to be made. With open and honest communications comes an increased likelihood that agreements can be made to the satisfaction of employers and employees alike.
Of course, there will always be situations when fire and rehire has to be considered. But to align with guidelines, this should genuinely be a last resort. It’s likely that the strategy will sour relations between management and staff, and there’s also a wider reputational issue to consider. Customers are more conscious than ever of the ethics of the businesses they use, and information can spread much more quickly in the digital age – so communication may also be required with wider stakeholders to ensure the brand’s reputation isn’t tarnished by firing and rehiring.
The best way to avoid getting into a situation where the strategy may be necessary is to ensure that contracts include flexible clauses. The ability to vary employment benefits and annual leave, for example, puts companies in a much stronger position should they find themselves having financial issues which call for contractual changes. It also means there’s a level of transparency and honesty from the outset, that staff may experience changes if (and only if) they’re necessary in order to keep the business afloat.
If the cautionary tales about big businesses who’ve been burned by their fire and rehire practices teach us one thing, it’s the value of having robust yet flexible contracts in place, and of keeping two-way communication going between leaders and employees throughout any difficulties or turbulence being experienced. By preparing for any eventuality from the outset with flexible clauses in contracts, businesses can best protect themselves from being forced down the fire and rehire route in the future – and in turn, they can help their staff avoid the ramifications of this controversial strategy too.
