Employment Advice

Fire and rehire – why employers need to watch out

For many years organisations have been using dismissal and re-engagement, often referred to as ‘fire and rehire’, as a method available to make a contractual change between the employer and employees. However, in February 2022, the High Court issued an injunction against Tesco, preventing them from operating this way.

04 Nov 2022

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Esther Marshall

Esther Marshall

The Tesco case – what happened?

In 2007, Tesco made operational changes. They relocated warehouses and staff working in the warehouses, with staff retaining pay. Tesco assured the employees that the retained pay would remain and could not be removed – it was to be a permanent clause within their contracts.

However, long term, Tesco did not view this as sustainable, and in 2021, employees who had retained pay featured in their contracts were offered a monetary incentive to encourage them to ditch the retained pay clause. Although this was offered to employees as optional, they were also all informed that contracts were going to be terminated if they did not agree. Employees who chose not to take the incentive were to have their contracts terminated by Tesco but were to receive an offer of re-engagement. Ultimately, Tesco sought to fire and rehire in order to remove the retained pay from the employees’ contracts.

In February, the High Court issued an injunction against Tesco to prevent this from happening, but now The Court of Appeal has overturned this decision, allowing Tesco to go ahead with its plan to fire and rehire.

What does this mean for businesses?

When the High Court offered its judgement in February, there was a lot of worry about what this would mean for businesses as the hire and rehire route was effectively outlawed. However, The Court of Appeal now going back on this view means that employers can fire and rehire employees without worrying about legal repercussions, but this does not mean it should be a frequently used method.

What are the risks of fire and rehire?

Employees have a growing awareness of their rights, and although employers can utilise a fire and rehire process, it is unlikely to make them popular with their own employees or the general public. Now the precedent has been set, more claims can be brought against employers using this system, so it is always important to consider if the risks of litigation and bad publicity will be less than the benefits of fire and rehire will provide.

M&P Commentary

Esther Marshall, Member and Solicitor in Employment Law, said:

“Whilst this latest decision may be seen as a “green light” to employers to utilise fire and re-hire, it remains an extremely contentious tactic. Employers should be alive to the reputational damage that firing and re-hiring employees can cause, as well as the damage to employee relations. Any employer considering going down this route should seek expert legal advice.

Similarly, if as an employee you are at risk of being fired and re-hired, our expert team can guide you through the process to make sure your employer is acting lawfully.”

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