Much has been said about the ‘unintended consequences’ of the Employment Rights Bill. Darren Newman argues that even the most reasonable employer could face automatic unfair dismissal claims if it tries to relocate staff, and that the government fundamentally misunderstands how issues of fire and rehire can arise.
The government would have you believe that dismissal and re-engagement – or fire and rehire – is an underhanded tactic used by bad employers, with an exception perhaps if the business is facing a financial emergency.
The scandal surrounding P&O Ferries’ decision to dismiss hundreds of employees brought fire and rehire into the spotlight in 2022. When the government introduced a statutory code of practice on fire and rehire last summer, policymakers were already working on the Employment Rights Bill, including how to “end” fire and rehire as Labour promised.
A detailed read of the Bill’s provisions on fire and rehire confirms that the government does not seem to appreciate the real-world implications of its proposals. It fundamentally misunderstands how issues of fire and rehire can arise.
As the Employment Rights Bill reaches its closing stages in Parliament I want to illustrate my argument by talking about relocation, such as the government’s plan to relocate thousands of civil servants from London towards other UK regions.
Relocating staff
Either the employment contract allows the employer to require the employee to relocate or it doesn’t. If it says, “You may be required to work anywhere in the UK”, then the employee can be told that the job is moving and be required to move with it.
As long as the employer does not breach the implied terms of mutual trust and confidence – for example, by providing too little notice – the employee can be required to move. If they refuse, they can be dismissed for failing to obey a reasonable instruction.
This article is an abridged version of a more detailed post on Darren Newman’s blog,
A Range of Reasonable Responses
If the employment contract says, “You will be based at our Westminster office but may be asked to relocate to an office within a reasonable daily travelling distance”, then the employer could for example, relocate to Canary Wharf and staff would be expected to accommodate that.
But it could not tell them to relocate to Darlington. So if the employer has decided on that sort of relocation, what should it do?
Seeking agreement
One first step would be to just ask the employees to agree to the move. That would involve a variation of their contract, placing the employment in Darlington rather than London. If an employee agrees, then it is very straightforward.
In most cases, they’re likely to take some persuading – salary, relocation expenses or other sweeteners that the employer can throw in. But it is still possible that some people will prefer to stay in London. Those individuals will have a contractual right to work in London that cannot be unilaterally varied by the employer.
An employment lawyer will next advise that, if the contract is no longer fit for purpose, then the employer can terminate it and issue a new one with the desired location written into it.
Virtually all employment contracts can be terminated by the employer giving notice. The notice depends on the terms of the contract, subject to the minimum notice periods (basically, one week per year of service up to a maximum of 12 weeks).
The employee can then either accept the offer of a new contract and move to Darlington or can refuse and their employment will come to an end.
If things get that far, then whatever choice the employee makes, they will have been dismissed. Its immediate replacement by a new contract – even with no gap in service – does not take that dismissal away.
That means the employee can claim the dismissal is unfair even if they choose to continue working for the employer. Compensation would be limited, however, as the employee will still be getting paid a salary. So, we would expect that most unfair dismissal claims would be brought by people who are not prepared to move and are now without a job.
Note that the employer in this case did not set out to fire its staff. That was not the plan. What it wanted to do was move everyone to Darlington.
Current rules on fairness
In an ordinary unfair dismissal claim, the employer must prove to the tribunal what the principal reason for the dismissal was and show that it fell into one of a number of what we call “potentially fair” categories.
These are conduct, capability, redundancy, statutory ban and – famously – “some other substantial reason” (SOSR). When we look at the reason for the dismissal we are looking at the facts which caused the employer to dismiss – not some overarching or long-term objective that the employer might have had in mind.
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In our example, the reason the employer has dismissed the employee is because they refused to agree to move to Darlington.
Refusing to agree to new terms and conditions is well established as a reason that falls within the SOSR category.
Whether the dismissal is actually fair will depend on factors including the strength of the business case put forward by the employer and the way in which it arrived at the decision to dismiss.
The fact that other employees have agreed to the change is another relevant factor. If a large majority agree to move, it would seem reasonable for the employer to say that the remaining few cannot derail the whole process. That calculation might be different if all employees vehemently reject the change.
All of these considerations are weighed up as part of the overall test of whether the dismissal fell within the range of reasonable responses available to an employer. It is a well-established cornerstone of the law on unfair dismissal,
The result is that the employer in our example would be advised that, provided they followed a reasonable consultation process, the dismissal of employees who did not agree to move is likely to be fair.
Fire and rehire under the Employment Rights Bill
I think it is quite clear that the Employment Rights Bill will make a dismissal in these circumstances automatically unfair. Clause 26 inserts a new ground of automatic unfair dismissal and says that a dismissal will be unfair if the principal reason for it is that the employer sought to vary the employee’s contract of employment, and the employee did not agree.
In our example, the employer has clearly sought to vary the contract and the employer has dismissed the employee because they refused to agree to the variation. The only way the dismissal can be fair is if it falls within the very narrow “financial difficulties” exception.
So, barring a financial catastrophe that will put the whole business at risk, the employer cannot fairly dismiss an employee who refuses to relocate. Such an employee will be entitled to full unfair dismissal compensation. There would be no “Polkey deduction” in the amount of compensation to reflect what would have happened if the employer had behaved reasonably, because reasonableness is not the issue.
Another option the employer might have is to move to dismissal without seeking the agreement of the individuals concerned. They could announce that everyone will be given notice of dismissal and encouraged to accept new contracts reflecting the new location. The dismissal would not then be for failing to agree to a variation because the employee would not have been given the option of doing so.
But there would still also be the question of unfair dismissal. Suppose the employer’s consultation was an absolute model of reasonableness. There was extensive engagement with the unions on all aspects of the move including its rationale and its implications.
What is the reason for dismissal in this scenario? Under the current law I think we would say that the principal reason for dismissal is redundancy – but the employer would probably plead SOSR as an alternative just to be on the safe side.
But, as well as making it automatically unfair to dismiss an employee for refusing to agree to a contractual variation, the Employment Rights Bill also says that the dismissal is automatically unfair if the principal reason is “to enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same duties, or substantially the same duties, as the employee carried out before being dismissed.” (Clause 26)
There is nothing in the Bill that lets the employer off the hook if the only change being made to the contract is the place of work.
Less favourable?
Here is a central problem, I think. Those advocating for the fire and rehire provisions in the Bill are thinking of an employer seeking to impose less favourable terms and conditions. But the Bill does not require the new terms to be less favourable for a dismissal imposing them to be automatically unfair. They may be thinking of an employer cutting pay or benefits – but the Bill does not require the variation to relate to these issues.
I have repeatedly encountered those supporting these provisions arguing that reasonable employers have nothing to fear. But by definition, the reasonableness of the employer’s actions is taken out of the equation when making fire and rehire automatically unfair. Unreasonable employers already risk a finding of unfair dismissal. It is precisely the reasonable employers that this new category of automatically unfair dismissal targets.
So, when the Bill comes into force, what is an employer seeking to relocate its business supposed to do? Does it just accept that any dismissals will be unfair and simply take that cost into account when budgeting for the move? Maybe.
I’d be interested to know whether the government accepts that any dismissals that result from the relocation of civil service departments away from London should be treated as being automatically unfair and whether civil servants who choose to remain should be entitled to compensation reflecting that fact. If so, do they think that is a fair burden to place on other employers who might also be considering a change in location?
These problems exist because the Bill does not allow for any exceptions other than financial difficulties. I have previously suggested that an amendment incorporating “technical or organisational” reasons for the variation would help. That would certainly encompass the sort of organisational change that involves a relocation.
Clause 26 approved
If the government thinks that an employer should be allowed to relocate its business when it has a good reason for doing so, then it might have considered Amendment 118 proposed by Lord Sharpe of Epsom, Lord Hunt of Wirral and Baroness Fox of Buckley, which covers exactly this.
However, the House of Lords Committee stage has now approved the fire and rehire provisions in Clause 26 without amendment.
Here is what government whip Lord Leong said in setting out the Government’s position on widening the exception: “When a change in contract is essential and the employee will otherwise become redundant – for example, due to a move in location – or where the changes are necessary to reflect a change in the law, the employer will still be able to explain to the employee when proposing these changes.
“However, such changes should always be a result of meaningful consultation. Employers and employees must reach mutual agreement, allowing both sides to understand and assess the impact of the proposed changes. Open dialogue is key.”
So the government is insisting that the only way of securing a change in location or even (oddly) “to reflect a change in the law” is for employers and employees to reach a “mutual agreement”.
There was no further information on what the employer should do if agreement cannot be reached. It seems as though the government’s plan is to push this measure through without compromise and deal with the consequences later.
Too much of the debate around the Employment Rights Bill has been vague and failed to get to grips with what the Bill actually says. While some measures on the Bill can be kicked into the long grass while consultations begin on the complex regulations that will be needed to enact them, the provisions on fire and rehire could be in force by Christmas. I hope that in the few weeks remaining of the Bill’s passage, the government really faces up to what banning “fire and rehire” actually entails.
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