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Why are big businesses firing and rehiring employees?

Two women walk past a branch of Clarks, one of the UK's oldest shoe chains
Staff at Clarks are considering strike action. Photo: Mark Kerrison/In Pictures via Getty Images (Mark Kerrison via Getty Images)

More than 100 employees at the shoe retailer Clarks are considering strike action as the company threatens to fire them and rehire them on worse contracts.

Staff say they’re being asked to sign new contracts that would reduce their pay by around 15%, give them less annual leave, and worse sickness terms.

Some 109 of the 145 workers in the Clarks Westway Distribution Centre in Somerset are considering strike action over the move. They are on contracts signed before Hong Kong-based private equity firm LionRock took over in February.

The so-called "fire and hire" practice has become more prevalent in recent years, so why is it so controversial – and can it be damaging for business in the long term?

“‘Fire and rehire’ is the phrase being used in the media for the practice of dismissing staff who refuse to accept a change to their terms and conditions of employment and offering to re-engage them on new terms and conditions,” says Alan Price, group operations director and HR expert at global employment law consultancy Peninsula.

“The practice is being criticised in the media, by the government and by unions because often the point of the exercise is to give staff less favourable terms and conditions, such as lower pay and longer hours.”

It might be unfair, but firing and rehiring employees isn’t illegal. However, it can still be an unfair dismissal if the correct process isn’t followed – including having a sound business reason, involving employees in the process and letting them appeal against their dismissal.

“In some ways, employment law does not concern itself with what is ethical – only what is lawful,” says Price. “Fire and rehire could be the only way for an employer to avoid redundancies. If the options are ‘lesser terms’ or ‘no job’, some employees will accept the employer’s position.”

According to Price, dismissing staff and hiring them can come with benefits for employers. Firstly, it can give struggling businesses flexibility to negotiate new terms and conditions that are more favourable to companies.

“It can give businesses the opportunity to make changes that may improve profitability or productivity,” says Price. “It might potentially save jobs for struggling businesses that would have otherwise have had to make redundancies.”

On the other hand, it can have a negative impact on staff morale, engagement and retention.

“Some staff may decide not to accept the new terms and leave the business, meaning the employer may lose their more experienced or higher-skilled staff if they are offered better terms and conditions elsewhere,” Price adds. “There is also the risk of possible reputational damage as some clients or customers may not want to work with a business that uses fire and rehire.”

Read more: Do people really want to return to the office on 19 July?

Since the pandemic started, there has been an increase in the number of employers firing and rehiring staff.

“The COVID-19 pandemic has put many businesses in an extremely difficult financial position. Firing and rehiring staff on less favourable terms and conditions can often be the only way that jobs that would otherwise have been at risk of redundancy can be saved,” says Price.

“Firing and rehiring staff on less favourable terms and conditions such as lower pay and longer hours may help the business to become more profitable and productive and prevent some businesses from having to close down permanently.”

Understandably, though, the practice has come under heavy criticism from employees, trade unions and others. In April, hundreds of British Gas engineers lost their jobs after refusing to sign up to tougher employment terms imposed by the company’s fire-and-rehire scheme.

However, British Gas reported profits of £80m in its most recent update. Additionally, its parent company Centrica received £27m under the UK government’s job retention scheme.

The government has come under pressure to review the legality of such tactics, with ministers ordering a review by the Advisory, Conciliation and Arbitration Service (ACAS).

In its findings, which were published in June, ACAS gave different scenarios where ‘fire and rehire’ would and wouldn't be acceptable. However, the government has yet to respond.

“Whilst fire and rehire is not unlawful, employers need to be mindful of the negative impact that using this practice may have on the business, including the potential reputational damage,” says Price.

Watch: How to negotiate a pay rise