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In this briefing, we answer some key questions about the practice, including times when this tactic could be considered, what the reputational risks are, and what employers need to do to stay on the right side of relevant employment laws.
Firing and rehiring – technically known as dismissal and re-engagement – can be justified as a fair reason for dismissal under the heading of ‘some other substantial reason’. It therefore has the advantage for employers of not constituting a redundancy in law, and avoids redundancy payments if individual employees do not agree to the new terms and are exited.
Say a housebuilder has five CAD designers and decides that rather than reducing down to four by way of redundancy, they would rather reduce the basic pay of all five by 20% each. In other words, they still save the cost of one designer, but retain the same number of staff.
In order to justify the decision, there would need to be a business rationale – such as a reduced order book – and consultation with staff to see whether they agree to the change.
Employers might choose this tactic where they are hopeful that work levels will improve, and that staff can ultimately be retained after a short-term adjustment to benefits.
It might be used in highly skilled sectors where there is a short labour supply and where there could be difficulties in finding other staff in the event of redundancies.
It can also be used as an emergency measure whilst employers weigh up their other options, since they are not precluded from making redundancies further down the line.
First, employers need to have a justifiable business rationale for the decision. Second, they must consult with staff to try to reach an agreement. If an agreement cannot be reached, the third step is to serve notice and give the employee the notice period under the old contract to accept the new one.
Be aware that collective consultation can be triggered if more than twenty people at one establishment are impacted by these proposals. This means you must consult any recognised trade union or if there is not one, you must consult employee representatives and follow the prescribed statutory consultation periods. For that reason, we often see this tactic being used with smaller groups of employees to avoid these obligations.
This can be best managed by giving employees as much notice and explanation as possible and by investing time in the consultation and trying to reach an agreement.
This tactic ought to be avoided where there are multiple redundancy or other exercises running in tandem, as this can be confusing. Before adopting cost-cutting measures, employers should ask for volunteers, determine whether anyone wishes to take a sabbatical, check if government support is available and look at other measures so employees are assured that a full and thorough process has been followed.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.
27 May 2021