The Facts

“Fire and rehire” is the practice of dismissing employees and offering to re-engage them immediately on new terms and conditions. It is a controversial practice occasionally used by employers to implement changes to employees’ terms and conditions of employment where the employees will not agree to the changes. The practice can also be used in the context of TUPE transfers where changes to terms and conditions of employment would otherwise be void under TUPE, even with employee consent.

In 2021, Acas published advice on “fire and rehire”, highlighting its concerns about the practice. In 2022, P&O controversially dismissed around 800 employees without consultation. In the wake of this, having decided that there should be no outright ban on dismissal and re-engagement, the Government announced that a new Statutory Code of Practice would be published on the use of dismissal and re-engagement to bring about changes to terms and conditions. They consulted on a draft code between January and April last year and now the response to that consultation has been published together with an updated version of the Code.

The revised version of the Code is shorter and has been re-ordered and simplified. In the main its key contents remain substantively the same, however, there are some new requirements including a recommendation to contact Acas before raising the prospect of dismissal and re-engagement.

Scope

The Code will apply in situations where employers:

• are contemplating making changes to their employees’ terms and conditions; and
• envisage that if the employees do not agree to the changes, it may dismiss them and either re-engage them on the new terms or engage new workers on the new terms.

It will apply regardless of the number of employees affected or regardless of the business reasons for the proposed changes to employees' terms and conditions. The Code clarifies that, while it will not apply where an employer is only envisaging making employees redundant, in scenarios where an employer is envisaging both redundancy and dismissal and re-engagement in respect of the same employees, the Code will apply.

Key provisions of the Code:

Information sharing and meaningful consultation

The updated Code now makes clear that the first steps are information-sharing and consultation. Information should be provided as early as reasonably possible and include as much information regarding the proposals as reasonably possible, ideally in writing. The Code states the employer should consider providing information:

• on the nature of the proposed changes;
• to whom they will apply;
• the business reasons for them;
• the anticipated timing and its rationale;
• what other options have been considered; and
• proposed next steps.

The Code makes it clear that an employer has to take all reasonable steps to explore alternatives to dismissal. Employers should engage in meaningful consultation with trade unions, other employee representatives or the individual employees with a view to reaching an agreed outcome. The Code does not prescribe how long consultation should last, but it advocates longer consultation.

"Last resort"

The Code states that employers must not use threats of dismissal to put undue pressure on employees in circumstances where the employer is not, in fact, envisaging dismissal as a means of achieving its objectives. The Code emphasises dismissal and re-engagement should only be considered where no agreement can be reached and as a last resort, where there is no reasonable alternative.

Contacting Acas

In a change from the draft Code, the new Code states that before employers raise the prospect of dismissal and re-engagement with their employees, they should contact Acas for advice. However, the Code does not include any information on the exact role Acas would play in these circumstances, beyond stating its expertise in maintaining good industrial relations and resolving disputes, so it is unclear what practical impact it will have.

Re-examination of proposals

Once it has become clear to the employer that employees and/or their representatives do not agree to some or all of the contractual changes which it has proposed, the employer should re-examine its proposals. As part of this analysis, the employer should take into account any feedback it has received from employees and/or their representatives. It should also consider its objectives, the negative consequences of imposing the changes, any discriminatory impact, and whether there are reasonable alternatives to achieve the objectives.

Consequences of not following the Code

The Code is not legally binding on employers, however, failure to follow the Code will be admissible in evidence in proceedings before a court or employment tribunal.

In addition, in certain tribunal claims where the Code is relevant, the tribunal can:

• Increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the Code.
• Decrease any award by up to 25%, where it is the employee who has unreasonably failed to comply with the Code.

What this means for employers

Subject to Parliamentary approval, the Government has said the Code will come into force this summer.

While the new Code does not substantially change the law in this area, once the Code is implemented, employers will potentially face significant financial penalties if they do not take the Code into account in dismissal and re-engagement exercises. As well as the additional financial risk, the risk of reputational damage for employers using dismissal and re-engagement is also likely to increase.

Employers should also note that the Labour party have pledged to ban the practice of dismissal and re-engagement if it wins the general election.

The Government's response to the consultation and the new Code of Practice can be viewed here.