New Code of Practice on ‘fire and rehire’

On 19 February 2024 the Government published a revised draft Code of Practice on Dismissal and Re-engagement (the Code) as well as its response to the earlier consultation on this. The revised Code aims to curb unethical use of the practice of ‘fire and rehire’ tactics by employers.

The Code will need to be taken into account by employers when proposing to make changes to employee terms and conditions.

Background

Employers will frequently want or need to change employees’ terms and conditions of employment. As contractually-enforceable terms cannot usually (or easily) be varied unilaterally, where the employer is not able to reach agreement with the employees affected by the proposed variation, the employer may decide that the only way it may be able to implement the change is by way of giving notice of dismissal to the employee and at the same time make an offer of re-engagement to the employee (or ‘fire and rehire’) as a means of implementing the changes.

The practice of ‘fire and rehire’ has been in the spotlight since March 2022 when P&O Ferries summarily dismissed more than 800 employees on its ferries and then replaced them all with cheaper agency labour. Technically this was ‘fire and replace’ and as the vessels concerned were registered overseas, P&O did not breach the criminal law provisions of the Trade Union and Labour Relations (Consolidation) Act 1992 (the relevant piece of UK legislation governing, amongst other things, collective consultation obligations in large scale redundancy and contractual change situations). However, the approach that P&O took provoked outrage across both sides of the political divide and the Government promised to take action to restrict the use of ‘fire and rehire’ as a practice. A draft Code and consultation period followed in the early part of 2023.

What’s the latest development?

The Government has now considered the responses it received during the consultation period, issued a response and a revised version of the Code has been issued.

The Code provides practical guidance as to the steps that employers should take in a contractual variation situation to ensure that its process is reasonable and appropriately takes into account the objections put forward by the employees.

This includes the requirement that an employer takes “all reasonable steps” to explore alternatives to dismissal and engages in meaningful consultation with a view to reaching an agreed outcome with employees and/ or their representatives.

It also warns employers against raising the prospect of dismissal and re-engagement potentially being a step it may take unreasonably early in the consultation process, or subjecting employees to undue pressure by threatening dismissal when this is not a step that it genuinely envisages it will take.

Unlike current duties to collectively consult, there is no requirement that the employer proposes to dismiss at least 20 employees at any establishment for the consultation obligations under the Code to be triggered. The Code will apply regardless of the number of employees affected by the variation proposed.

Steps to follow

The Code recommends that employers provide as much information as possible to employees at an earlier stage than the earlier version of the Code suggested. It now recommends that information is provided before the employer might reconsider its business plans.

The type of information to be provided might include:

• what the proposed changes are (including what the proposed new and/ or revised terms will look like);
• who will be affected by the proposed changes;
• the business reasons for the proposed changes;
• the anticipated timings for the introduction of the proposed changes and the reasons for those;
• details of any other options that have already been considered by the employer; and
• the employee’s proposed next steps.

The employees, and their representatives, should be given opportunity to ask questions following the provision of information and throughout the period of consultation. Whilst the Code does not stipulate a minimum length of consultation it suggests that the longer that is allowed the better.

If no agreement is reached the Code recommends that the employer considers all the relevant factors before proceeding with dismissal and reengagement. This stops short of being an obligation to formally reassess any earlier analysis about the reasons for the proposed variation and proceeding with dismissal, but the revised Code suggests that it would include the employer looking at:

• the objectives which it is seeking to achieve;
• the negative consequences of imposing the proposed changes – these could include:
  • risks to the employer’s reputation;
  • damage to relationships with its workforce or representative trade unions;
  • the potential for strikes or other industrial action;
  • the risk of losing valued employees;
  • the risk of facing legal claims, and the associated costs and management time;
• whether its proposals could have a greater impact on some employees than others, noting that this might be on the basis that they share a protected characteristic under the Equality Act 2010; and
• whether there are any reasonable alternative ways of achieving the same objectives.

The wording in the earlier draft Code about contacting Acas has also been changed, recommending that employers should contact Acas before raising the prospect of dismissal and re-engagement with employees. The aim of this change is to hopefully make it more likely that Acas will be able to assist both sides reach an agreed outcome and avoid the need for dismissals.

If dismissal and re-engagement then does eventually follow, the Code also recommends that steps should be taken to mitigate the impact including:

• providing as much notice as reasonably practicable of the dismissal and taking into account the minimum notice period to which the employee is entitled;
• considering if the changes could be implemented in phases;
• providing practical support, such as relocation assistance, career coaching or counselling for emotional support; and
• where possible, setting a future date to reassess the changes.

Following implementation of any contractual changes, the Code states it is good practice for the employer to set out the new terms of employment in writing. It is also a legal obligation to provide employees with a written statement of employment particulars and written confirmation of any changes.

The Code also states new terms should only contain changes that have been subject to the information-sharing and consultation process and should not use this as an opportunity to make any further changes.

Enforcement

The Code is an important document and employers need to take account of what it recommends. In the event of a dismissal occurring to which the Code applies – which will include individual unfair dismissal claims and not only larger-scale contractual variation exercises – employment tribunals will be required to take the Code into account. They will have the power to apply an uplift of up to 25% of an employee’s compensation if the conclusion is that the employer unreasonably failed to comply with the Code.

What next?

The Code of Practice will come into force once approved by Parliament which is expected later in the summer of 2024.

In the meantime, any employers reading this who are potentially considering a need to introduce a variation to employees’ contracts and who are unclear about how to progress this, please do not hesitate to contact our team.