Fire and rehire changes: Practical tips for employers

The article ‘Fire and rehire reform: What employers need to know‘ by Chris Piggott contains the details, however the most paramount points to note are as follows:

Under the current law:

An employer wishing to change an employee’s terms and conditions generally has three options:

1. Reach an agreement with the employee to change by consent;
2. Push through the changes unilaterally, for which there may be consequences for breach of contract; and
3. Dismiss the employee, without notice, and immediately offer re-engagement on new terms.

Following the amendments:

Section 28 of the ERA introduces three new provisions into the Employments Right Act 1996 (ERA 1996) covering dismissal where an employee does not agree to certain contractual changes. Essentially these changes mean that dismissal will be automatically unfair if dismissal follows:

• The employee’s refusal to agree to the restricted variation; or
• The employer sought to re-engage that employee, or replace them with another employee, under a contract that includes a restricted variation.

Restricted variations include changes to:

• Pay or the way an employee’s work is performed
• Pension terms
• The number of working hours
• The timing and duration of shift arrangements
• The amount of time off an employee is entitled to take

There is a limited exception where an employer can demonstrate the restricted variation was necessary to address significant financial difficulties affecting, or likely to affect, its ability to continue as an ongoing concern, and that the need for the variation could not have reasonably been avoided. For public sector employees, the test relates to the financial sustainability of carrying out statutory functions.

Even when this exception applies, the dismissal must still be considered under the ordinary unfair dismissal test, including factors such as the consultation undertaken, and anything offered to the employee in return for agreeing to the variation.

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Practical tips for employers

1.Review your variation mechanisms.

Employers should review their variation of contract mechanisms without delay to see what current contractual flexibility they have to amend working conditions. If any proposed change is an exercise of an existing contractual right, then it will not be necessary in most circumstances to get to the stage of having to seek the employee’s agreement.

2.Draft contracts for new hires carefully

In a similar vein to the above, employers will still be able to include flexibility clauses in the contracts of new hires.

However, it is worth noting that the use of flexibility clauses is heavily restricted by case law and therefore any flexibility clause should be drafted as effectively as possible focusing on the restricted variations.

3.Strengthen consultation

The most effective and simplest route to varying the contract is to reach agreement with the employee. Therefore employers must engage in thorough and meaningful consultation with employees and or their representatives during which the employee has access to the relevant information required to make an informed decision.

4. Plan ahead

Planning ahead will be a crucial part of strengthening consultation. Conversely, if cost saving exercises, restructuring or harmonisation of terms are anticipated, early identification of the same provides employers with the opportunity to determine whether those proposals could fall within the new restricted categories.

5. Train HR and senior management

Provide training on 1)  the importance of obtaining early legal advice before proposing contractual variations and 2) how to approach consultation so that employees do not feel intimidated into agreement.

6. Financial difficulty exception

If employers seek to rely on this narrow exception, tribunals will need to consider the employers financial position, its ability to continue as a going concern, and whether the contractual variation could reasonably have been avoided. Employers should ensure they have detailed financial evidence to support their position before seeking to rely on this exception.