‘Fire and rehire’? How to change terms and conditions in employment contracts

An employer may look to change the terms of their employees’ contracts for a number of reasons but what process should they follow?

This article looks at when, why and how an employer may change the terms and conditions within an employment contract and the possible consequences of doing so.

The practise of ‘firing and rehiring’ employees in order to achieve a change in terms and conditions, usually to the employees’ detriment, has featured prominently in the news recently with companies such as British Gas and British Airways in dispute with their workforce over proposed contractual changes. In response to concerns raised in Parliament, Acas has published new guidance for employers explaining how to make changes to employment contracts in order to avoid having to fire and rehire staff.

When and why?

There are several reasons why an employer may look to amend the terms of a contract. Changes may be beneficial (such as an increase in pay or introduction of new or enhanced benefits), detrimental or neutral in their impact. A change in working location or introduction of flexible or hybrid working may impact upon employees’ differently. In the motor sector, employees’ pay entitlement may change at regular intervals when manufacturers’ commission structures are varied and employment contracts need to allow the employer to make these alterations. If not, the employer may be at risk of a breach of contract claim.

How?

Ideally, employment contracts should give an employer flexibility to vary terms. However, employers should take care in relying upon generalised flexibility clauses as these are unlikely to be enforceable, particularly where employees may suffer a detriment as a result. Important considerations for an employer will be the number of employees affected by a proposed change, whether an established consultation procedure exists, and whether they recognise a trade union.

What can an employer do if the employment contract does not expressly allow to make changes?

1. Explain the proposed changes with a view to seeking the employees’ agreement. Where the changes are beneficial, employees are unlikely to object so the process should be relatively straightforward. Where the changes are detrimental, obtaining agreement may be more difficult.
2. Impose the changes unilaterally. As the employer will be in breach of the original contract if it imposes changes without agreement, the employees can respond by:
   
   • acquiescing by continuing to perform their contract. By impliedly agreeing to the change, they will lose the right to claim breach of contract; however, in practice, courts are usually reluctant to find implied consent unless the change has immediate practical effect
   • working under protest. In this instance, an employee may continue to work whilst bringing claiming breach of contract (or unlawful deduction from wages where pay has been reduced), thereby making it clear to the employer that they do not accept the change
   • resigning and claiming constructive dismissal if the change amounts to a repudiatory breach of contract. This depends upon the effect of the breach but financial changes are more likely to fall within this category
   • refusing to work. Where day-to-day working arrangements are impacted, an employee could refuse to work. If the employer dismisses them, they may be able to claim unfair dismissal (and wrongful dismissal if notice is not given).
3. Terminate and re-engage. This is commonly known as ‘firing and rehiring’ as the employer will terminate the original contract and offer employment under new terms. Assuming the required amount of notice is given, the employer will not be in breach of contract but may have to defend an unfair dismissal even where the new contract is accepted.

In its new guidance, Acas warns that this is an extreme course of action that can damage the employment relationship and risk reputational damage. If the proposal relates to 20 or more employees, the employer must comply with specific collective consultation obligations under section 188 Trade Union and Labour Relations (Consolidation) Act 1992 or face a claim from each employee for their failure to inform and consult.

Since variations to employment contracts are inevitable, employers can take practical steps to permit such changes in certain circumstances. Although, in practice, it is best to consult with employees to seek their consent to any variation, they are not likely to agree to detrimental changes. Therefore you may need to use other incentives and/or follow a different procedure in order to achieve the desired outcome.