Avoid the rehire trap

"Rehiring can undermine a team's faith in leaders' ability to attract and retain top talent," argues Monkhouse & Company's CEO

Elon Musk's recent actions at Tesla have sparked a heated debate around the practice of mass layoffs followed by rehiring former employees.

After letting go thousands of workers, recent reports suggest that Musk has brought back some of the team members he initially fired.

Against this backdrop, a high-profile case involving Tesco has thrust the fire and rehire issue further into the spotlight. In a lawsuit brought to the Supreme Court last month, a trade union is challenging a Court of Appeal decision that allowed Tesco to withdraw a 'retained pay' incentive for warehouse workers by terminating their contracts and re-engaging them on updated terms.

Read more: Fire and rehire

Although this method of hiring can seem appealing on the surface, as rehired staff can be brought back on more amenable terms for the business and are familiar with the company, the approach raises several concerns that business leaders must carefully consider.

A key question I always ask CEOs is: "Knowing what you know about this person, would you enthusiastically rehire them?" Remember, you’re looking to build an A-team, not a B-team by settling for below-average hires just because it is easier and more convenient than finding someone new.

The why behind firing and rehiring

When rehiring occurs after unanticipated departures, resignations or mass layoffs, it should prompt leaders to look deeper into why those employees left or were let go in the first place and why the company needs them back now. There must be a clear understanding of what went wrong previously and what has changed to prevent history repeating itself. Often, the factors that led to an employee's initial departure may still be present, casting doubt on whether a rehire is truly the right solution.

Team dynamics and morale

Rehiring can undermine a team's faith in leadership's ability to attract and retain top talent. In the recent cases of Tesla and Tesco there will be an undercurrent of anxiety among the workforce as to why mass layoffs are happening, and why individuals are being rehired in the first place. Existing employees may feel overlooked or question why the company is unable to find and retain suitable candidates. This can breed resentment and a sense that hard work and loyalty are not valued.

On the other hand, those who have ben rehired may face resentment or awkwardness from colleagues who remained, particularly if circumstances surrounding their departure were contentious. Transparent communication and addressing these sentiments is crucial for maintaining a cohesive and motivated workforce.

Read more: Boomerang employees: Re-hiring ex-staff

Moreover, the rehiring process itself can be disruptive and consume considerable time and resources. Efforts must be made to properly reintegrate the returning employee, which may involve retraining, rebuilding relationships, and realigning expectations. This transition period can be challenging, especially if the company has undergone significant changes since the employee's departure.

The cultural toll

If companies are letting go of people they'd enthusiastically rehire, there's a fundamental problem with the people strategy. Top-performing individuals likely won't be the ones available for rehire; they'll be swiftly snapped up by other organisations, potentially even competitors.

It's not the first time that Musk has laid off employees only to backtrack, highlighting a concerning pattern. A culture of snap layoffs and rehiring can severely undermine psychological safety within a team, ultimately hurting productivity and customer satisfaction. If an 'A-player' sees other exceptional colleagues laid off on a whim, they're likely to start looking for opportunities elsewhere. Conversely, the lower performers will become entrenched, the opposite of what a scaling business should aim for when building a high-performing team.

Legal and ethical considerations

The UK government's new statutory code of practice on fire and rehire tactics has been criticised for not going far enough to deter employers from using this controversial practice. While the code aims to provide guidance, many argue it lacks real teeth to protect workers from being fired and rehired on worse terms.

Read more: Fire and rehire tactics surge during Covid-19

As business leaders, we must approach rehiring after mass layoffs with great caution and introspection. It should not be a knee-jerk reaction but a thoroughly considered decision backed by a comprehensive understanding of its impacts on team dynamics, recruitment processes, and ethical considerations.

Ultimately, building a sustainable, high performing team requires a commitment to continuous improvement in talent acquisition, development, and retention strategies. Rehiring should be the exception, not the norm, and a catalyst for identifying and addressing deeper organisational issues.

By Dominic Monkhouse, CEO and founder of Monkhouse & Company