The so-called practice of hiring and firing has hit the headlines recently with a number of trade unions calling for more legislation to curb its use. So, what is it and is further legislation needed?
Changing the terms of employment
Over the course of the last year, many employers have had to take several cost cutting measures to navigate the economic issues caused by the coronavirus pandemic.
Many employers have benefitted from the furlough scheme, saving on wage costs and staving off redundancies. However, as the furlough scheme winds down and the economy begins to reopen, employers will be planning how they adapt beyond the pandemic. In some cases, this may mean some workforce restructuring to get the right ‘organisational fit’ and possible contractual changes, such as reducing hours of work or pay to achieve cost savings.
Changes to hours of work and pay will mean changing the terms of the employment contract which, under contract law, the employee must agree to. However, the employee may not want their hours to change or their pay to be reduced. In this situation, the employer may have no alternative but to consider terminating the contract of employment and offering the employee employment on a new contract with the new terms. Some commentators have called this 'firing and re-hiring'.
However, it is not that simple for employers. There are legal processes which must be followed and the employer will need good reasons for making the contractual changes. If not, they are exposed themselves to tribunal claims and financial penalties.
If an employee has at least 2 years’ continuous employment, they have the right not to be unfairly dismissed. If the employer wishes to make changes to their terms of employment which the employee is not agreeing to, before dismissing and offering re-employment on the new terms, the employer must have gone through a reasonable process. This will include having good reasons for making the changes, consultation with the employee on them and, consideration of alternatives to achieve the same desired outcome. Usually, a proposal to make changes to avoid redundancy will be a good reason but it will depend on the circumstances.
If the employer is proposing to change the contractual terms of 20 or more employees and is considering the option of dismissing and re-engaging if the employees refuse the changes, the employer may have to collectively consult for a period of at least 30 days. If a trade union is not recognised by the affected employees, employee representatives will also need to be elected before consultation can commence. A failure to collectively consult may result in a financial penalty for the employer of up to 13 weeks’ gross pay per affected employee.
The employee must be given their contractual notice of dismissal before they commence work on the new terms. If not, they will have a breach of contract claim against their employer.
Should it be banned?
In most cases employers will be considering contractual changes in an effort to avoid making redundancies. It is not surprising that attention has been drawn to the practice in the current economic climate when employers have had to make difficult decisions about their future.
However, if further prohibitions were placed on dismissing and re-engaging, employers may have no other option but to make redundancies instead, which would be a worse outcome for employees and potentially the economy.
If you have any queries regarding the issues covered in this article, please contact Charlie Barnes.