In Focus

HR & Talent

Many people did not like the cut of P&O’s jib last March, when it made about 800 employees redundant via a video call. The ferry company insisted that the move was crucial to its survival, but eyebrows were raised when the firm immediately replaced those employees with cheaper agency workers.

The case crystallised concerns about the rise of so-called fire-and-rehire practices. This is when employers seek to make changes to their terms of employment and, if employees don’t agree, their contracts are terminated. They may then be offered the chance to rejoin the company on those rejected – and typically less favourable – terms.

Figures released in 2021 by the Chartered Institute of Personnel and Development revealed that 22% of employers had amended their employees’ contracts since the start of the pandemic, mainly to reflect changes in work location, hours and pay. About 3% of employers had dismissed staff and rehired them as part of this exercise.

What’s in the new rules?

Fire and rehire has become such a toxic policy since the P&O scandal that, according to one poll last year, three-quarters of the UK population believe that it should be banned. While it’s not proposing to go that far, the government is looking to crack down on it with a new statutory code of practice on dismissal and re-engagement. A consultation on its contents ended in April. The code is likely to go before Parliament later this year. 

Under the code, employers would be required to consult staff throughout the process and explore alternative options without using the threat of dismissal to force employees into acquiescing to any new terms. Its guidance also advises engaging in regular and meaningful communication with employees, conducting an ongoing assessment of whether the changes are vital and always giving as much notice as possible. Fire and rehire should only be a last resort.

Crucially, these aren’t just warm words. Employment tribunals will be given the power to increase an employee’s compensation by up to 25% if their employer is found to have unreasonably failed to comply with the code.

How the rules codify best practice

Much of what’s in the code should be familiar to HR teams, according to Angela Brumpton, a partner specialising in employment matters at law firm gunnercooke.

“It is merely a statement of what is already good practice,” she says. “Prudent lawyers would always advise a client to inform staff, explore solutions, seek feedback and reach an agreement if at all possible. But the code is seeking to overlay a minimum standard of good behaviour on top of this. It acknowledges that the employer may ultimately face unfair dismissal claims as a result of a fire-and-rehire exercise and will have to show it acted fairly and reasonably in all circumstances.” 

Chris Garner, MD of HR consultancy Avensure, agrees that the code “raises the bar of reasonableness” and formulates a clearer process around fire and rehire.

“It stops employers using it as a first resort,” he says. “There may be companies that are in very difficult financial situations and see it as the only way out, but this code will refocus their minds.”

What does this all mean for HR teams?

HR teams will need to review the new rules and processes. Brumpton warns that the code also has some key weaknesses that employers will need to account for. For instance, there is no guidance on the requirement for them to consult “for as long as possible” to reach an agreed solution. This could prove too vague and be open to challenge, she predicts.

“The code also warns employers against using threats of dismissal to intimidate,” Brumpton says. “In practice, this could be a delicate balancing act. Employers need to be honest with employees that a failure to agree changes may result in job losses.”

HR teams may need to up their game too – for instance, by paying closeer attention to the legal details in negotiations and adopting a more conciliatory tone.

“It’s not always what you do but the way that you do it,” Brumpton explains. “HR professionals need to be very careful about the language they use. They should be telling their managers not to threaten dismissal and instead change the language subtly to say that this is only a possibility.”

Tina Chander, head of employment law at Wright Hassall, believes that the code gives HR professionals the chance to ditch the “cloak and dagger” approach to fire and rehire.

“The starting point in the new code is that you want to make changes, but you also want the employee to stay in the business,” she says. “You need to have a dialogue to make that work. That should put HR in the spotlight in a more positive way.”

Why prevention is better than cure

To head off the risk of fire and rehire before it arises, Garner advises HR professionals to work more closely with senior decision-makers in the organisation to spot operational warning signs that could lead to panic dismissals.

“If an employer suddenly can’t pay the wages at the end of the month, then fire and rehire becomes an option,” he says. “Plan well ahead to give yourself time to follow the process and consider the options in that scenario. It’s fairer to the employee.”

Alan Price, chief executive of BrightHR, agrees that it’s crucial for HR practitioners to understand the business situation in more detail before entering negotiations with employees.

“Instead of HR just implementing the managerial decision, it should understand the full financial rationale behind it,” he says. “If employees refuse the new terms, then take them on the journey as to exactly why the business is doing this. Be more open and informed about costs, sales and profit margins. HR needs to develop more financial literacy and commercial skills.”

One other key consideration is that, given the recent negative publicity surrounding P&O, employers must bear in mind the reputational risks of any misstep in this area.

But, even with the added risk of more scrutiny, an increase in tribunal costs and uncertainty over parts of the code, Brumpton believes that HR professionals have the expertise to keep handling the process.

“There are existing codes for dismissals. This new one doesn’t mean fundamental change, so there is no need to parachute in specialist lawyers,” she says. 

That said, fire and rehire is likely to remain a risky business.

“If you don’t get this right, it will cost you,” Garner warns. That, after all, is how the government really intends to prevent another P&O-style scandal.

In January the UK’s biggest neobank, Revolut, announced the formation of something it called CultureLab – an internal team of behavioural scientists and psychologists with the task of overseeing employees’ adherence to a new list of “value-based behaviours”. By the standards of conventional HR practice, it was a remarkable move.

The crucial context is that this came after a spate of bad press for Revolut, with current and former employees speaking out about the firm’s “aggressive” culture. The bank presented CultureLab as its chosen method for changing the situation at speed. In effect, it had handed that responsibility to the scientists, who were armed primarily with a tool known as nudge. 

For those unfamiliar with the term, it has its origins in the 2008 book of the same name. In Nudge, Richard Thaler and Cass Sunstein posited that human behaviour could be influenced without coercion through the use of small, carefully designed prompts that they called nudges.

“The underpinning idea of nudge theory is that by redesigning choice architecture it is possible to influence the behaviour and decision-making of groups and individuals,” explains Martyna Śliwa, professor of business ethics and organisation studies at Durham University Business School.

How does nudge work in practice?

The idea has been widely used in politics over the past 15 years. In 2010, for instance, David Cameron created a behavioural insights team in the Cabinet Office to change how his government communicated its policies. That ‘nudge unit’ team is credited with positive outcomes such as the shift to an opt-out model for workplace pension scheme enrolment, massively increasing the number of workers saving towards retirement. 

The principles of nudge have been applied in the business world. A 2020 study by Morningstar examined the use of behavioural science in businesses and not-for-profit organisations. It found that 45% had some form of behavioural science expertise in house, but this knowledge was typically applied in public-facing functions such as marketing. Only 5% of respondents had a behavioural science specialist in their HR teams. 

Indeed, most businesses dabbling in behavioural science tend to work with external consultants to implement HR-related nudges. That was the approach taken at BNP Paribas when the bank signed up to the He For She project, a UN initiative on gender equality.

The bank maintains a roughly even gender split across the organisation, but there was initially a clear disparity in two of its teams. About 70% of staff in the HR function were women, while only 15% of senior leaders in the global markets team were women. 

“The question we had at the time was why for some roles the gender mix remained imbalanced, despite a non-discriminatory hiring process,” says Caroline Courtin, director of diversity, equality and inclusion at BNP Paribas. 

Outside help or an in-house team?

To address this problem, the bank’s HR team worked in partnership with BVA Consulting to seek behavioural solutions to this cultural challenge. They gathered diagnostics on the issue, interviewed staff from both teams and hosted a round-table discussion with a team of behavioural scientists to discuss their findings. This work was then detailed in a ‘nudge book’, which was distributed to the global markets and HR teams. 

This led to the implementation of ‘golden nudges’ for each function. In the HR team, at least one man must be involved in the writing or editing of a job description, to ensure that the language used appeals to both sexes. The job title ‘HR business partner’ is also written out in full to encourage applications from other areas of the business. Likewise, on the global markets team, at least one woman must be included in the interview process to help create a reference point for female candidates. 

Since implementing these nudges, both teams have achieved a more consistently even gender split. Courtin explains that the bank regularly uses the nudge principle because of its light-touch nature and its ability to effect lasting change. 

“What’s interesting with those nudge techniques is that they have no real cost. You just test them, learn and then think about your process,” she says. “Today we are much more careful and systematic in how we write and review job ads.”

Why it’s still early days for nudge

Although there are several possible use cases for behavioural science in the HR function, the application of nudge here is in its infancy compared with other parts of the business world. 

“Not enough is known about how behavioural science can help learning and development,” says Sarah Nicholl, a corporate learning strategist and author. “While most large organisations have a change management or a project management office, not a lot of behavioural science is being applied. Bringing even just a behavioural scientist into those groups would help enormously.” 

The specifics of how best to deploy a nudge capability in an organisation are still the subject of some debate. For instance, is it better to have a team of in-house behavioural scientists, who can turn their hand to any problem, or to embed consultants in teams for the duration of a project? 

For Śliwa, it depends on the specialisms of the behavioural scientists concerned. “The risk is that the in-house nudge team might lack specific knowledge in different areas, including those functions in which the organisation might wish to use nudges,” she explains. “In this sense, a key negative side effect of an in-house nudge unit might be, ultimately, its limited effectiveness.”

Nicholl notes that formalising a behavioural science unit could also make employees feel they are being manipulated or policed, especially in struggling businesses.

“As everybody’s saying, there are ‘economic headwinds’ right now and employees are worried about layoffs,” she says. “Depending on how you implement nudges, and particularly if you put it in a formal system, people will be more sensitive to how that’s being used and how their behaviour is being assessed.”

How to embed nudge skills in existing teams

A more effective use of the nudge principle, Śliwa suggests, might instead lie in embedding knowledge of nudges within teams, either by assigning dedicated behavioural scientists to key functions or by training non-expert employees to apply the tenets of nudge theory. 

At BNP Paribas, the team hasn’t explicitly hired for behavioural science competencies but has taken a pragmatic approach to when and where staff are nudged.

“The value of a nudge is your ability to test and learn, and to try simple solutions that can have a significant impact on a decision-making process,” Courtin says. “We haven’t made nudge a principal technique and we don’t have a ‘nudge team’. We’ve made it transparent too – we’ve even published about our use of the technique.”

HR-focused nudges therefore have a role to play in organisations, even if full-blown Revolut-style CultureLabs are yet to take hold. One reason for that, Nicholl suggests, is that behavioural science’s interdisciplinary nature means there’s a lack of undergraduate and professional training on nudge, resulting in few HR leaders well versed in the subject.

And the case of BNP Paribas may even demonstrate that a nudge is perhaps best used as a focused tactic rather than a formal strategy. That doesn’t mean Revolut’s behavioural scientists won’t succeed, but to view a nudge unit as a silver bullet in and of itself might be a mistake.

In May last year, 700 employees of the Swedish fintech company Klarna learnt that they were being laid off via a pre-recorded voice message from their CEO. In November, Elon Musk sent a memo to thousands of staff at Twitter informing them that they would shortly receive their notice via email.

Tech firms globally have put about 330,000 employees out of a job since early 2022, according to online tracker Layoffs.fyi, with many organisations continuing their penchant for “disrupting” normal ways of working by dismissing employees remotely.

Emma Hughes, associate professor of HR management at Leeds University Business School, suspects that tech firms used this approach because it was the fastest and easiest way to get rid of large numbers of employees and a way for them to directly control the redundancy process with minimal resistance. Or so they hoped, anyway. She also wonders whether the Covid-induced shift to online working led them to think that a digital approach would be acceptable.

Yet Hughes warns: “When employees find out their fate through digital methods, whether that’s an email or a recorded message, it’s an impersonal and blunt way to deliver devastating news. Employees deserve more respect and dignity – and a meaningful consultation process.”

Where big tech lags other sectors

Angie Kamath, dean of the NYU School of Professional Studies, characterises the digital layoffs as “inhumane” but says the scale of these redundancies should not necessarily surprise us, given that tech is a relatively new industry.

“Tech has been making money hand over fist,” she says. “There’s been tons of investment, all kinds of venture capital money flowing in based on good future ideas, and we’re now starting to see a maturing of the industry that includes corrections for massive over-hiring, accompanied by general belt-tightening. These are concepts that industries such as finance and manufacturing have been dealing with for a long time.”

Kamath doesn’t think that the redundancies were made maliciously, but she does believe there was some “awful forecasting” at play. Matters may have been made worse by Covid ushering in an era of hybrid working, leaving these firms on the hook for the bills stemming from huge real-estate assets.

Is the industry risking a vicious circle?

What consequences are the tech firms likely to see from their actions? Hughes says that only time will tell, but notes that, when you have people such as the UN’s high commissioner for human rights, Volker Türk, raising concerns about the redundancies at Twitter and the fact the human rights team and ethical AI team were laid off, it will surely have an impact.

“For employees who are still at the company, there will probably be a loss of trust and an increase in concern about whether it will happen again,” Hughes says. “That can lead to other issues, such as a lack of commitment, cooperation and engagement, leading to higher staff turnover. It might influence future recruitment too.”

Kamath takes a similar view. “It’s going to come back and haunt some of these firms,” she predicts. “There is a lot of research on what workers want and how they’re demanding more from the system and not accepting that they’re just cogs in the wheel that make company executives a lot of money.

She adds: “Leaders have to lead and part of leading is delivering bad news as well as good. There is no company that is so big that it can’t deploy someone to let an employee know their work was appreciated but they no longer have a future with the company.”

That doesn’t have to be a long conversation, Kamath stresses, but she does believe that there is mounting pressure on tech companies to humanise their redundancy process. She points to the open letter that 1,400 Google employees wrote to Sundar Pichai, CEO of parent company Alphabet, asking for better handling of layoffs.

“A lot of employees at other firms could have written something similar,” Kamath says.

There have already been some legal ramifications for tech firms too. About 40 former Twitter employees in the UK have taken legal action against the firm for a failure to conduct a proper consultation process with fair selection criteria for those being made redundant, and for cutting them off from the internal company’s systems so they couldn’t obtain the support and representation they needed.

In the US, employees have had less scope for litigation, as firms don’t have to go through a consultation process before making staff redundant.

“It’s not a crime to be a jerk,” Kamath says. “And, while some of the approaches have felt pretty tone deaf, there has not necessarily been anything wrong in a legal sense.”

How to cultivate better HR habits

The main principle for big tech or any other business to take from all this, according to Hughes, is the importance of running a detailed and meaningful consultation process with employees and their representatives before sending out any redundancy emails.

“Discuss the redundancy plan, whether there are alternative options and what the wider implications of these job cuts are,” she advises.

For remaining staff who may be offered new roles to cover the gaps created, it’s never been more important to examine your employment contract before signing it, stresses Hughes, who adds: “Even though it’s boring, read through your contract in great detail. If you’re not sure about something, get some advice on it.”

Indeed, some recent legal battles involving tech companies have centred on the contractual language they have used. She also thinks it highlights the importance of employees joining a union.

For Kamath, there was a “fast and loose” nature to tech companies, which she expects to change.

“After major layoffs, we see in the data that people are skittish,” she says. “The only way to counterbalance this is to have procedures in place such as performance evaluations, potential for promotions and career ladders. Employers must really walk the walk on diversity and inclusion.”

Kamath adds that there should also be much more emphasis on talent management.

“An engaged employee is one who feels respected and has a sense of belonging at work,” she says. “They mentor other people, engaging in non-mandatory work functions and the professional development of themselves and others, which is what every firm needs.” 

Even the high-flying world of big tech stands to benefit from embedding such sound fundamentals.