Employment Rights Bill Deep Dive #2 Fire and rehire, zero hours workers and flexible working

Fire and rehire, zero hours workers and flexible working

Among the array of changes that the Employment Rights Bill seeks to introduce, the reforms relating to fire and rehire, flexible working and zero hours contracts, are some of the most transformative in terms of strengthening workplace rights. Although the changes are not expected to come into force until 2026, allowing employers time to prepare for them, they will mean that employers need to give even more careful consideration to employees’ contractual terms and resourcing planning if they wish to avoid incurring unnecessary salary costs, financial penalties and claims for unfair dismissal.

Below we look at each of these changes in more detail, as well as provide some key points for employers to consider.

Fire and rehire

Currently, employers can potentially rely on a dismissal and re-engagement process in order to vary an employee’s contractual terms (whether express, implied, verbal etc), where they have a sound business reason to do so (such as changing working practices and harmonising terms and conditions) and the employee does not agree to the variation. The Bill seeks to change this significantly, by introducing a new category of automatic unfair dismissal where the reason for the dismissal is that the employer sought to vary the employee’s contract of employment, and the employee did not agree to it. There will be no qualifying period of employment to benefit from this new right; it will be afforded to all employees from day one of their employment.

The previous Government introduced a new code of practice on dismissal and re-engagement which encourages compliance by allowing the code to be taken into account in employment litigation with potential for a 25% uplift in compensation but did not otherwise change the law in terms of when it can be used. The Labour party also made a commitment in its election manifesto to end the practice of fire and rehire.

Although the Bill does not make dismissal and re-engagement processes unlawful, it will mean those processes can be used in much more limited circumstances and makes them much riskier. This is because where employees are dismissed for failing to agree to a change in their contract of employment, those dismissals will be treated as automatically unfair unless the employer can demonstrate that: (i) the reason for the variation was to eliminate, prevent, significantly reduce or significantly mitigate the effects of financial difficulties which threatened their viability, and (ii) in all the circumstances, they could not have avoided the need to make the variation. This is clearly a very high threshold and may, in practice, be limited to circumstances where an employee is on the brink of insolvency which they will have to substantiate in evidence. An employer will also have to show that contractual variations were a last resort, and no other measures (such as hiring freezes, pay freezes, voluntary redundancies etc) were viable. These may be hard to evidence in all but the most extreme circumstances.

Even if an employer can show that the exemption applies, they are not home and dry in the event of a claim because an employment tribunal would still need to assess whether the dismissal was fair in all the circumstances taking into account factors such as any consultation carried out by the employer with the employee about varying their contract and anything offered to the employee by the employer in return for agreeing to the variation. The Government’s consultation paper notes that this measure means that employers will no longer be able to use dismissal and re-engagement procedures as an “intimidation technique” to make employees accept less favourable employment terms.

As well as this change, the Government launched a consultation on 21 October 2024 seeking views on whether interim relief should be available in fire and rehire situations and also whether there should be changes to the maximum protective award available for a failure to comply with the collective consultation obligations which apply to dismissal and re-engagement processes where the relevant thresholds are met. The consultation is open until 2 December 2024.

Interim relief is currently available to employees who claim to have been dismissed for one of a number of automatically unfair reasons, including making a protected disclosure (whistleblowing) and being an employee representative in a collective redundancy situation. Crucially, it prevents an employee’s dismissal taking effect before the final hearing of their claim which means they continue to be paid and is therefore a very valuable remedy.

Interim relief is rarely applied for and ordered in practice, especially because the applicant must show at an interim stage, before all the evidence has been considered, that their claim is likely to succeed at the final hearing which is a high threshold. However, the possibility of it being available in cases of dismissal and re-engagement will further increase the risk profile of these processes particularly in unionised workplaces where there tends to be a greater awareness of the remedy. The Government considers that it would further disincentivise employers from using dismissal and re-engagement processes, other than as a last resort.

Moving forward, it will be much more difficult for employers to force through a change to terms and conditions (such as new restrictive covenants or changes to benefits). It will be more important to try and reach agreement on contractual variations and employees will be in a much stronger bargaining position to negotiate incentives (such as one-off lump sum payments) to accept a change. Employers should consider carrying out an audit of employees’ contractual terms to understand where there may be issues or areas of inconsistency that could necessitate changes to terms for harmonisation or other purposes, and the extent to which any necessary changes are permitted by the contract. Employers could consider making any necessary changes before the introduction of the new legislation in 2026, and including the ability to make changes to terms and conditions in their contracts of employment in order to make changes unilaterally without agreement. That will, however, require a clear, and specific right. A general right to vary terms and conditions will almost certainly not work.

Employers should also be cautious about introducing new benefits unless there is a right to change those benefits or it is made clear that the benefit is a one off. Terms and conditions should also be kept under review and at key stages such as promotions, pay rises and new bonus arrangements employers should consider whether it would be appropriate to make other contractual changes by agreement at the same time.

Flexible Working Requests

Since April 2024, the right to request flexible working has been a day one entitlement. The Bill will strengthen this right by providing that a request may only be refused where (i) one or more of the existing statutory grounds (such as the burden of additional costs and inability to recruit additional staff) applies and (ii) it is reasonable for the employer to refuse it on those grounds. This reasonableness requirement is a change from the existing requirement to deal with a request in a reasonable manner.

Where a flexible working request is refused, the notification will need to provide the reasons for refusing the application and explain why the employer considers the decision to be reasonable which will place a greater evidential burden on the employer.

The right to request flexible working is now available to more people and there are some employers who continue to push for greater office attendance. An uptick in flexible working requests can be expected as a result, and this change means that where requests are refused they will have to be handled with extra care although the changes in reality are relatively modest. Employers will need to clearly articulate and be ready to substantiate a fair basis for turning down the request. Policies and internal procedures will need to be updated to reflect this change. It may also be helpful to put in place standard operating procedures and template documents and provide training to those dealing with requests.

Notably, the penalty for breaching the flexible working rules will remain at 8 weeks’ pay capped at the statutory weekly pay rate which is currently £700. The flexible working legislation has been criticised for having no teeth, and that sanction may not necessarily be significant enough to encourage compliance. However, where an employee’s flexible working request is rejected they may still have scope to bring a discrimination claim. For example, where a woman’s request to work from home because of her childcare responsibilities is refused this could amount to indirect discrimination due to the ‘childcare disparity’ (that is, the established assumption that women bear a great burden of childcare responsibilities than men) and the fact that women may find it harder than men to attend the office every day. Discrimination claims are riskier for employers because compensation is uncapped and they tend to raise broader concerns around reputational damage and commercial risk.

While the change to the flexible working regime is not a game changer, it will raise people’s expectations in terms of the availability of flexible working options not least because the Government is describing the change as making flexible working the default.

Guaranteed Hours

The issue of how to regulate so-called exploitative zero hours contracts and the problem of one-sided flexibility has been discussed for many years, stretching back to the Good Work Plan in 2018 and the Taylor Review in 2017. The Government has been very clear about offering protections for workers who have little security of working hours or income from one week to the next.

The Bill aims to put an end to exploitative one-sided flexibility in zero hours and low hours contracts by giving workers new rights to (i) guaranteed hours, (ii) reasonable notice of shifts,  shift changes and cancellations, and (iii) payments for cancelled, moved or curtailed shifts. These provisions make up the most complex parts of the Bill and a lot of the detail is yet to be published.

Notably, the Government is not banning zero hour contracts recognising that businesses (particularly those operating in the Retail and Hospitality sectors) need flexibility and many workers appreciate the flexibility of not working set hours. However, the changes go much further than the right to request a predictable working pattern proposed by the previous Government which are not now proceeding.

The Bill introduces the concept of guaranteed hours for qualifying workers. Qualifying workers are those working under a zero hours contract or a low hours contract where they work more than their contracted hours in the reference period. The ‘low hours’ threshold and the reference period are yet to be decided although the latter is expected to be twelve weeks. Employers will be required to make a qualifying worker an offer of guaranteed hours (setting out the hours and days on which they will make work available) at the end of the reference period as a permanent change to their contractual terms and conditions.

Importantly, this is not an obligation on a worker to request guaranteed hours. The obligation is on an employer to offer the worker guaranteed hours reflecting the total number of hours worked in the reference period. The obligation is also a continuing one as the Bill currently envisages guaranteed hours offers being made at the end of subsequent reference periods and possibly further offers while the worker remains under the low hours threshold. Where the low threshold hours is set will be important to assessing when these rights apply and who is affected. The changes mean that employers will need systems in place to track working hours and flag when guaranteed hours offers should be made.

There is an exemption in the Bill for short term labour needs where ‘limited term’ contracts can be used. These are essentially fixed term contracts which can be used where reasonable and there is a ‘limiting event’. The Bill seems to envisage short term, specific tasks where a worker is only needed for a particular event and their contract ends after the event (such as a sporting event or farm work during harvest time) or where there is a temporary need and the contract is terminated where that need has come to an end (for example, providing sickness absence cover). These provisions may be wide enough to cover seasonal fluctuations for businesses operating in the hospitality, manufacturing and retail sectors, for example in the run up to Christmas and the January sales, but this remains to be seen.

A worker will have the right to accept or reject the offer within a specific timeframe. If the worker accepts the offer, they will work under a new or varied contract with the guaranteed hours. Where an employer fails to make a guaranteed hours offer, a worker can bring a claim in the tribunal and be awarded compensation based on their financial loss if their claim succeeds.

The Bill will also introduce rights to reasonable notice of shifts, shift changes and cancellations and payments for shifts that are cancelled, curtailed or moved at short notice. Again, much of the detail (for example, what is meant by short notice and the amount to be paid) will be set out in regulations.

The Bill sets out potentially complex new procedures, an array of new enforcement provisions and remedies for breaches before an employment tribunal. Employers will therefore welcome a lengthy consultation on the impact of these new rights. Employers affected by these issues will need to take extra care over resource planning in order to avoid surplus hours, unexpected costs and to mitigate the risk of claims. 

The Bill does not currently apply to agency workers but that may change. On 21 October 2024, the Government launched a consultation on extending these measures to agency workers recognising that agency workers may be used to get around the new rules. The consultation closes on 2 December 2024 and the Government has announced that it will consult at a later date on the implementation of these measures more generally.

If you would like to discuss the potential impacts of any of these changes on your business operations and employees, please get in touch with your usual contact in the CMS Employment team. For information about other reforms under the Employment Rights Bill, see our Deep Dive #1 on day 1 rights and look out for further articles in our Deep Dive series.

This article was co-authored by Josie Sharratt, a trainee solicitor in the CMS Employment team.