Is changing terms of employment about to become more difficult?

10 Jun 2021

A recent ACAS report suggests it may become more difficult for employers to change terms of employment through the process of dismissal and re-engagement or “fire and rehire”. Such processes could become subject to far closer scrutiny by Employment Tribunals, with stronger sanctions for unfair dismissal in such situations and more onerous consultation obligations.

There can be a variety of reasons why the employer might want to introduce a change in terms.  It might be to reflect changes in the operational needs of an organisation or it might be a response to a change in commercial and financial requirements of the employer.  Regardless of the reason for the change there are three possible routes available:
  • Variation in accordance with the terms of the contract.
  • Variation by agreement.
  • Variation through dismissal and reengagement.
If there is no contractual right to vary the terms and the employee will not agree to the variation, an employer will have to consider dismissing the employee under the existing terms and, at the same time, offering re-engagement under the revised terms of employment, to start on the termination of the old contract.  That puts the ball in the employee’s court. The employee is then forced to either accept the revised terms or,  alternatively, to accept the dismissal and seek to challenge it through the Tribunal by way of an unfair dismissal claim.

In such situations the employee is, without doubt, placed under significant pressure.  Employees with less than 2 years service will not have the option of challenging their dismissal through an unfair dismissal claim.  Even where an employee does have two years service, he or she is faced with the unattractive option of being without income and relying on litigation to pursue financial compensation.  Very often it will be many months if not years before any Tribunal claim will be heard.  

Even when the Tribunal claim is heard, it will be open to the employer to defend the dismissal on the basis that they adopted a fair process in coming to the decision to dismiss and on the basis that there were compelling business reasons why the change in terms and therefore the dismissal was necessary. Tribunals have generally been sympathetic to employers who can show that they have sound business reasons for requiring the change and who can show that they have followed a fair consultative process in trying to secure agreement before reaching the stage of having to dismiss and re-engage.

For all these reasons, threatening dismissal and reengagement is a powerful tool in the employers armoury where it wants to secure a change in terms of employment.

Some argue that the balance is tipped too far in the employer’s favour and that employers have abused the process during the pandemic.  They have used reasons related to the pandemic and the pressures that that has imposed upon businesses to justify undertaking dismissal and reengagement exercises.  

In response to those concerns ACAS were invited by the Department for Business Energy and Industrial Strategy to carry out an independent and impartial fact finding exercise with stakeholders to inform BEIS’ policy thinking on the issue.  ACAS’ report has just been produced. 

The report reflects the wide range of views held by different stakeholders on the issue.  Not surprisingly there are some who regard the practice as entirely legitimate and an important part of an employer’s ability to react to changing demands that are placed on any organisation.  At the other end of the scale there are those who regard the process as frequently abused and a tool by which unscrupulous employers have sought to bully their way through negotiations and systematically reduce terms and conditions of employment.

Similarly ACAS’ report reflects a range of views on whether the current legal framework adequately protects employees from such abuse.  The general view identified by ACAS was that the legal risks associated with dismissal and reengagement were relatively low provided that the employer is well advised.  Similarly the procedural requirements of collective consultation were generally regarded as loopholes through which an employer had to pass rather than significant barriers.

The report discussed potential changes in the legal framework relating to dismissal and reengagement. The possibilities identified included:
  • allowing Tribunals to look more closely at the employer’s business reasons for imposing a change and to challenge those decisions.  This would run counter to the traditional view of the Tribunal role that it is not the Tribunal’s responsibility to interfere in employer’s business decisions
  • providing that dismissals for the purpose of re-engaging employees on less favourable terms and conditions are automatically unfair, giving rise to a right for all employees, including those with less than 2 years service, to make a complaint to an Employment Tribunal
  • specifying that redundancy and ‘some other substantial reason’ (SOSR) dismissals are unfair where the employer had reasonable economic alternatives open to it such that it could have avoided taking that approach 
  • providing that the primary remedy where fire-and-rehire dismissals are found to be unfair should be reinstatement based on the ‘old’ contract, though with scope for fair flexible adjustment of work organisation
  • reforming and strengthening the collective consultation obligations in relation to such process which currently only arise where 20 or more dismissals may be involved
  • strengthening employer’s obligations around adherence to procedures under collective agreements 
  • legislating to protect the continuity of service of employees and workers who are fired-and-rehired
  • prohibiting the use of wide contractual variation clauses so that new restrictions around fire-and-rehire do not lead to greater use of such clauses
So, what next? No doubt there will be more consultation but the themes that are emerging are consistent with the Government’s Good Work Plan, so do not be surprised if some of these ideas are gently introduced into future legislation. 

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