The Employment Rights Bill 2024 in depth: putting out the flames on fire and re-hire

An overview of the key changes

The Bill introduces significant limitations on the longstanding practice of 'fire and rehire', a strategy that, while sometimes controversial, has served as a critical tool for employers facing genuine business challenges. Traditionally, fire and rehire has allowed employers to introduce necessary contractual changes by terminating the existing employment contract and offering re-engagement on new terms. Under current law, such a dismissal is classified as a 'some other substantial reason' (SOSR) dismissal. A SOSR dismissal is a potentially fair reason for termination if a fair process is followed.

While effective, the practice has faced criticism for its potential misuse, with concerns that it can be open to abuse by employers seeking to impose detrimental changes without negotiation or consultation. These concerns have driven the Bill’s aim to reshape the legal framework for such dismissals, making dismissals for refusing contractual changes automatically unfair unless they meet narrowly defined exceptions. Specifically, to justify dismissals in this context, employers must demonstrate:

• An essential business need: that the proposed contractual changes were essential to avoid substantial financial harm to the business which were affecting or were likely "in the immediate future to affect" the employer's ability to carry on its business

• Exhaustive efforts: that in the circumstances the employer could not reasonably have avoided the need to make the variation

Understanding these restrictions and their impact is essential for employers as they consider how to navigate the complexities of contractual updates under the Bill. The heightened standards will, if passed, require employers to approach contractual variations with greater transparency, strategy, and diligence to ensure compliance while safeguarding business continuity.

Beyond fire and re-hire: broader protection for employees

The Bill’s focus on protecting employees extends beyond traditional fire and re-hire cases. Under the new rules, employers are exposed to automatic unfair dismissal claims based solely on the act of dismissal for refusing contractual changes. This means that it is not the re-engagement or replacement of the employee after dismissal that incurs liability, but rather the initial decision to dismiss an employee who refuses changes to their terms. As a result, employers cannot reduce their exposure to claims by delaying offers of re-engagement or recruiting replacements (including agency staff) at a later stage.

This shift arguably goes beyond a targeted ban on 'fire and rehire' or 'fire and replace' practices and instead prohibits any dismissal arising purely from an employee’s refusal to accept revised terms. By making these dismissals automatically unfair, the Bill creates a significant deterrent encouraging employers to consider alternative, collaborative approaches to implementing contractual changes. To navigate these restrictions effectively, employers may wish to focus on securing employee buy-in through early consultation and by framing proposed changes as mutually beneficial. Offering attractive incentives, such as additional benefits or phased adjustments, can help ensure that employees see value in the updated terms, facilitating agreement without the need for dismissal. This proactive approach can help maintain good employee relations while aligning contracts with evolving business needs.

Will employers be able to rely on unilateral variation clauses to impose changes?

It is not unusual for a contract of employment to contain a clause allowing the employer to vary the contractual terms without employee consent. Employers may look to rely more heavily on these clauses under the new law. However, the existing body of case law generally limits the use of such clauses, particularly for substantial changes that impact fundamental terms of employment, such as salary, work location, or job responsibilities.

In practice, courts and tribunals have consistently held that these clauses cannot be used to impose significant changes unilaterally without risking a breach of contract. Where employers rely on such clauses to make substantial alterations, the risk of claims for constructive dismissal or breach of contract remains high. For employers, this means that transparent communication, voluntary negotiations, and possibly offering incentives to gain employee agreement will be increasingly important when changes are needed. Relying on unilateral clauses to impose significant changes is unlikely to meet the new standards for fairness and compliance under the Bill.

Evidencing the reason for dismissal

The Bill states that a dismissal will be automatically unfair if the reason is the employee’s refusal to agree to new terms. However, employers may argue that broader organisational or commercial drivers influenced the dismissal, rather than solely the employee’s refusal.

The success of this argument will depend on the unique facts of each case. For example, if broader economic or strategic challenges led to restructuring, employers might seek to argue that dismissal was due to these underlying issues rather than refusal to accept new terms. Documenting the wider business rationale and maintaining records such as board meeting minutes, financial forecasts, and strategic planning documents will be essential in supporting this position.

Such documentation not only strengthens an employer’s case under the Bill but also reflects a structured, transparent approach to managing change, bolstering legitimacy if a dispute arises.

Demonstrating an 'essential business need'

If the reason for dismissal is indeed due to an employee’s refusal to accept terms, the Bill permits a narrow defence in cases of essential business need. However, this defence is challenging to establish, as it requires substantial evidence of financial justification and proof that all reasonable alternatives to dismissal were exhausted.

Employers should therefore adopt a meticulous approach when planning contractual changes that impact employment terms. This includes documenting each stage of the decision-making process, considering flexible alternatives, and engaging with employees transparently. By thoroughly justifying financial needs and showing a concerted effort to collaborate, employers can better position themselves to meet the Bill’s high standards and maintain business continuity.

Compliance and best practice in employment relations

The changes proposed in the Employment Rights Bill mark a significant shift in the protections available to employees, particularly in relation to contract variations through fire-and-rehire practices. For employers, aligning employment practices with the Bill’s new standards will be essential to maintaining positive employee relations and minimizing potential disputes. Establishing open communication channels and fostering collaborative dialogue with employees will help build a resilient, adaptable workforce strategy in line with these upcoming regulatory changes.

Employers already considering fire-and-rehire exercises or other changes to contractual terms may wish to start planning as soon as possible, ideally aiming to complete any such processes before the Bill’s passage into law, which is expected to be in mid-2025 at the earliest.

Employers are advised to closely monitor the Bill’s progress and remain prepared to respond as the timeline and requirements become clearer. By being proactive and strategic, employers can protect their position, reduce exposure to potential claims, and establish best practices that foster trust and compliance in the face of these significant legislative shifts.

For more information or advice, please contact Gareth Edwards in our Employment team on 0117 314 5220, or complete the form below.