Termination and re-engagement on new terms, or ‘fire and re-hire’, has been around for a long time but really only entered the public consciousness with P&O Ferries' dismissal of 800 staff. Now the Labour Party has promised to ban it.

Termination and re-engagement is typically only used as a last resort when changes to existing terms are not agreed by staff and carries the risk of legal claims if a fair and proper process isn't followed. P&O Ferries' actions were unusual in that it accepted that it didn't follow a proper process and it intended to hire different staff to the ones dismissed. This spurred the Government into promising a (yet to be seen) code of practice to regulate dismissal and re-engagement and Labour has recently announced its plan to ban fire and re-hire if it gets into power.  

Where an employer proposes to change terms and conditions, such as access to a defined benefit pension scheme, staff may well feel that the goalposts have been shifted when access is withdrawn. For their part, employers could point to the fact that defined benefit pensions have become much more expensive to run in recent years, leading them to offer less risky defined contribution pensions - and that having different pension offers for staff isn't fair. 

Employers too may well feel that the goalposts have been shifted - with employees living longer, successive governments tightening both tax and regulatory policy and long periods of hyper-low interest rates all contributing to the greater risk and cost of defined benefit pensions.  

So whilst employees may feel that they are not getting what was promised, employers may well counter that this is because factors beyond their control have radically changed the landscape - and that it's therefore fair to move away from what was originally agreed.

Changes in the economic climate (including rising interest rates) have made it more attractive to exit defined benefit pension schemes for many employers as deficits have reduced or even turned to surpluses. Whilst employers will be asking for consent from staff, ultimately they could look to terminate and re-engage if there is no agreement.  

Termination and re-engagement is already regulated by unfair dismissal laws. If a fair process isn’t followed and the reason for the dismissal isn’t sufficient, then the termination may be unfair.  Bearing this in mind, is a complete ban a sledgehammer to crack the nut of a few unscrupulous employers – or just making employers honour their promises? Ironically, Labour's threat to ban fire and re-hire completely might have the opposite effect to the one they intended - with employers rushing for the exit whilst they still can.

For more information and discussion on this topic, look out for our podcast on this - coming soon.