Why ‘fire and rehire’ tactics are on the rise in fmcg

An “abomination”. A “horrific practice”. A tactic that is “legally controversial and morally bankrupt”. Unions have long railed against the practice of ‘fire and rehire’ – a way to end established staff contracts to start new ones on less favourable terms.

With the advent of Covid-19, the issue has come to a head. In February, Unite warned a “creeping culture” had emerged. “‘Fire and rehire’ is ripping through our workplaces like a disease,” said its general secretary Len McCluskey. It estimates one in 10 workers have been threatened with the tactic.

This rise in incidents led Labour MP Barry Gardiner to last week propose a private members’ bill that would outlaw the practice. Writing in The Times, he said: “There are thousands of workers across Britain who have been threatened with being fired and then rehired to do the same basic job for worse pay and conditions.”

Crucially for the fmcg industry, food and drink companies made up the lion’s share of employers named and shamed by Gardiner. Jacobs Douwe Egberts (JDE), Tesco, Sainsbury’s Argos and Weetabix have all faced criticism over using these tactics.

So what exactly does ‘fire and rehire’ involve? Why is it becoming more commonplace in food and drink? And is Gardiner’s bill likely to stamp it out before it gains further ground?

Usdaw claimed employees at Tesco’s Livingston distribution centre could lose between £4,000 and £19,000 per year.

In essence, ‘fire and rehire’ involves forcing employees to accept a different contract to the one they originally agreed. Although each case will vary, that tends to mean doing the same amount of work for less reward.

In May, Usdaw claimed employees at Tesco’s Livingston distribution centre could lose between £4,000 and £19,000 per year. In the case of JDE, Unite says the 291 affected employees could “lose between £7,000-£12,000 a year under these new contracts, which may mean some of them losing their homes”. That figure is disputed by JDE, which says the £12k estimate “applies to a small number of associates and under current proposals the average loss is £5,000”.

Either way, it’s a substantial hit to earnings. And a sum that isn’t uncommon. New contracts at Weetabix could shave up to £5,000 a year off wages, says Unite.

In this case, the company says the situation isn’t as cut-and-dried as it might seem. It tells The Grocer the changes to pay reflect its cut to night shifts, which typically command a premium, for 35 employees. It’s arguably less severe than other cases, in which workers can be contracted to do exactly the same type and volume of work for a lower salary.

Whatever the situation may be, though, unions are keen to point out ‘fire and rehire’ has a universally damaging impact on motivation. “Our members have worked tirelessly throughout the pandemic and have continued to feed and clothe the nation,” says Unite. To be rewarded with a cut to pay and conditions has “an appalling effect on morale”.

GMB makes a similar point. “In the long term, it’s really problematic,” says Eamon O’Hearn, national officer for its manufacturing section. “I can’t imagine people happily coming back to work having had £2,000, £3,000 or £4,000 taken off their salaries.”

Some, such as Tesco and Sainsbury’s, say ‘fire and rehire’ is the only means of phasing out legacy contracts. But there is another, increasingly prevalent motivation coming into play: cost-cutting. Acas, which published a report on ‘fire and rehire’ earlier this month, says this had emerged as a common theme. Some respondents suggested the growing use of the tactic was “linked to the nature of the urgent business challenges thrown up by the Covid crisis”.

O’Hearn says this is certainly the case in the food and drink industry. Although GMB hasn’t fought any ‘fire and rehire’ cases yet, he has heard growing rumblings in the unbranded manufacturing sector. “It’s becoming raised in conversations more regularly,” he says. “It’s being alluded to in ongoing discussions around growing costs – not just from Covid but from Brexit, too.”

He has “some sympathy” with these suppliers, who are facing squeezes on costs from all sides – particularly retailers. “They’ve dropped premiums, cut back on pensions and company sick pay. This is the last cut.”

But they “haven’t covered themselves in glory,” O’Hearn adds. “There have been opportunities to stick their head above the parapet but they’ve chosen not to, creating this condition of a race to the bottom.”

Unite is more scathing. It claims the rise of ‘fire and rehire’ tactics is more down to corporate greed than anything else. “The cases we’ve seen are opportunistic, particularly in food and drink where they [companies] have done well,” says a spokesman. “It’s simply about cutting costs. It’s about greed not need.”

It cites the case of Weetabix, whose US parent company Post Holdings has had a bumper year, with profits of just over $700m in its November accounts.

Cost hikes

But many of its peers making similar moves have not fared so well during Covid. Even if sales grew, profits were largely down. JDE, for example, was flat in terms of organic sales growth but suffered a 10.5% decline in operating profits in 2020. Tesco has repeatedly talked about the massive rise in costs during Covid, which outweighed any increase in sales – resulting in a 20% hit to pre-tax profits in its latest accounts.

Plus, there is an even more important factor to take into account, says Steve Simmance, founder of fmcg recruitment specialist The Simmance Partnership. In essence, the balance of power between employer and employee has shifted during Covid – firmly in favour of the employer. This was illustrated by The Simmance Partnership’s latest analysis of salaries across sales and marketing roles in fmcg, which painted a picture of stagnation in pay and declining benefits.

‘Fire and rehire’ is simply an extension of that trend, he says. “People have been doing this for a long, long time,” Simmance points out. Now, market forces are making it easier as “the market is awash with talent and organisations are having to downsize for financial reasons”.

Usdaw also points to a supply-and-demand narrative. “We’ve seen a growing number of businesses using the uncertainty of job security in the pandemic to manipulate workers into taking worse terms,” says general secretary Paddy Lillis, who has publicly condemned the practice at Tesco.

“The cases we’ve seen are opportunistic, particularly in food and drink. It’s simply about cutting costs. It’s about greed not need”

This case, now in the High Court, is one of the few examples of unions going down a legal route. For the most part, they have been fighting claims through collaborative negotiations with the employer using Acas guidance. Or, where those talks fail, industrial action.

JDE has arguably been the most high-profile example of the latter route in fmcg. Unite has organised two 24-hour strikes and a continuous overtime ban since 1 May. So far, the loss of production has cost JDE around £18m, Unite estimates.

However, the company is pushing ahead. In its latest update, Unite said employees who had not signed the new contracts with inferior pay and conditions would likely be issued with 12 weeks’ notice of redundancy.

It’s an entirely legal – if unpopular – way to cut costs, says Alison Flett, an employment lawyer at Capital Law, “Just because a business uses fire and rehire as a means to change employees’ terms and conditions, this does not mean they are acting unlawfully,” she stresses. Employees can make counter claims, such as unfair dismissal, wrongful dismissal, or breach of collective consultation requirements. But “it is likely that an employer will be able to defend claims if it can show it had legitimate business reasons”, Flett adds.

That’s the reason why campaigners are keen to outlaw ‘fire and rehire’ in the UK, to bring it in line with countries such as Ireland, Spain and France. In Scotland, SNP minister Gavin Newlands in May presented a private members’ bill on the subject, which is now awaiting its second read. Leading the charge in England is the aforementioned Labour MP Barry Gardiner and his bill, read for the first time last week.

“The bill would stop fire and rehire – it’s that simple,” he said. “It’s wrong that workers are being told you’re out, you’re fired, and you can only get your job back if you’ll accept lower wages, lower terms and conditions, less holiday pension and a poorer pension.”

Gardiner has the backing of many of his Labour peers – and some employers, too. “It’s wonderful that so many good employers and business leaders condemn ‘fire and rehire’,” he wrote in a column in the Times last week. “My bill is not only morally right but in the best interests of sustainable business.”

Unite has vocally supported Gardiner as part of its End Fire and Rehire campaign. It says a change to “weak” UK labour laws is the only way to curb the rise of the practice. Although the union acknowledges there may be a case for short-term cost-cutting measures – especially in industries particularly affected by the pandemic, such as aviation – a new contract “is a permanent change”. That’s why it’s keen to stop ‘fire and rehire’ in its tracks legally.

That stance is echoed by Usdaw, which says a change to the law is “long overdue”, and GMB. “Fundamentally every job has an inherent value,” stresses O’Hearn. “To say you’re not worth that any more is incomprehensible.”

This support from unions is, of course, to be expected. For the bill to succeed, it must convince a Parliament with a Conservative majority. But Boris Johnson publicly branded the use of ‘fire and rehire’ tactics by British Gas “unacceptable” in January. And a poll in May by GMB suggests a tougher stance could prove a vote winner. It found 76% of total respondents said the practice should be illegal – and 71% of Conservative voters.

So ‘fire and rehire’ could soon become a legal, rather than ethical, issue. In that case, it may force the biggest names in the industry to rethink their cost-cutting measures. But the crucial question for employees will be what happens while the bill is being discussed – and the full impact of Covid starts to hit home.