Will employers still be able to use the practice of ‘fire and rehire’ in 2022?

USDAW & others v Tesco Stores Limited QB-2021-000988

In a recent case the High Court has granted an injunction preventing Tesco from using the controversial employment practice of ‘fire and rehire’.

The tactic of firing staff and then rehiring them, typically with the purpose of enforcing the removal of benefits, has attracted increased negative media attention and this case represents a dramatic development in the law. We look at the case and whether the practice remains viable for employers in 2022.

Fire and Rehire

The issue is a common one, where an employer wants to make a change to staff terms and conditions, but the staff refuse to accept the change.

There are steps employers can take to encourage staff to accept the change such as offering an incentive, clear communication and timing the change to coincide with a beneficial change. Ultimately, if the staff continue to refuse the change, then employers are forced to consider terminating the existing staff contracts on notice and offering continued employment on the new terms.

The controversial tactic has been much discussed during the pandemic, where its use attracted renewed criticism. This led to ACAS in November 2021 publishing updated advice on changing employment contracts. The new advice explicitly stated: “fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations”.

In the public sector, where it is common for staff to be supported by strong unions there has been forceful demands for the practice to be banned, with Labour and the TUC in 2021 calling on the tactic to be banned.

A Radical Case

In 2007-2009 Tesco agreed to pay staff ’Retained Pay’ during a reorganisation and relocation of its staff working in distribution centres to avoid losing all of its staff. The Retained Pay was a permanent change to the terms and conditions of Tesco staff impacted by the reorganisation.

Then in January 2021 Tesco sought to sought to remove Retained Pay and offered staff the choice been a lump sum of 18 months’ Retained Pay or being fired and rehired on the new terms. In response, USDAW applied to the High Court for the following:

1. Declaration: A declaration that affected employees’ contracts were subject to an implied term preventing Tesco from exercising the right to terminate for the purpose of removing the right to Retained Pay.
2. Injunction: An injunction preventing Tesco from terminating the contracts.

The High Court found in favour of USDAW and granted relief on both points. There was an implied term that the staff could not be fired and then rehired to remove the Retained Pay, as the Retained Pay had been promised in language that clearly expressed its permanency. The injunction was granted as damages would not be an adequate remedy and so Tesco was prevented from commencing the fire and rehire.

Tesco tried to argue the ‘Johnson Exclusion Zone’ blocked USDAW’s argument on the implied term as it would duplicate the statutory right to claim unfair dismissal. The Johnson Exclusion Zone is the rule that an employee cannot seek damages for breach of the implied term of trust and confidence on how they were dismissed. However, the court held that this principle should not be extended to other implied terms and that this did not impact the unfair dismissal regime.

Comment

The case represents a big shift in the law but turned on the ‘extreme’ facts of the case. 2022 will certainly not be the year that the practice of ‘fire and rehire’ comes to an end. However, in light of the judgment and the ACAS advice, it is clear the tactic must remain a last resort.

Top takeaways

• Fire and rehire must be the last resort having exhausted all other options;
• It is essential that there is a robust commercial reason for why the change is required and this should be communicated transparently to affected employees from the outset;
• Communication and caution are key when dealing with any change to employee terms. An effective consultation process is more likely to result in a positive solution. Mutual agreement between the staff and the employer to change the terms and conditions will always be the safest option.
• To be effective, consultation should be a means of attempting to find an agreement and so compromise may be necessary on both sides.

Sharpe Pritchard has an experienced team of employment solicitors who regularly advises public sector clients on all manner of contentious and non-contentious employment law matters. Please contact Christian Grierson if you wish to discuss the implications of this article in more detail.

Christian Grierson is a Solicitor and Julie Bann is a Partner at Sharpe Pritchard LLP.

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This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk