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.  The draft Code has now been published and is open for consultation until 18 April 2023. 

The Government acknowledges that the practice can play a valid role. However, it is proposed that employers who fail to take the Code into account may face significant financial penalties, with courts and tribunals having the power to uplift compensation by up to 25% in any claim where the employer fails to do this. 

The draft Code states that employers must not use threats of dismissal to put undue pressure on employees to accept new terms instead of seeking to find an agreed solution.   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. 

The draft 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 in good faith and with an open mind.  The draft Code does not prescribe how long consultation should last, but it advocates longer consultation as a good thing. It sets out a step by step process that the employer should follow in exploring alternatives to discuss and in consulting. 

What does this mean for employers?

The detail of the Code may change following consultation, and we do not yet know when it is likely to come into force. 

However, once the Code is implemented, employers will face significant financial penalties if they do not take the Code into account in dismissal and re-engagement exercises.  The draft Code is detailed, giving lots of scope to argue non-compliance, and it is likely that unions will support their members in pursuing unfair dismissal claims in a “fire and rehire” scenario, pushing for an uplift in any compensatory awards.  As well as the additional financial risk, the risk of reputational damage for employers using dismissal and re-engagement is also likely to increase.