Fire and rehire - the Code of Practice

The Government has, last week, published its response to the consultation on the draft statutory Code of Practice on Dismissal and Re-engagement (commonly known as fire and rehire). There have been longstanding concerns over the use of this practice, and whether it is being used legitimately by organisations.

This was thrown back into the spotlight after P&O fired and re-hired its staff with no consultation at all in 2022 (although as solicitors we should point out the technicalities about which jurisdiction applied to these workers and the fact it wasn’t a technically fire and re-hire exercise as they engaged entirely new workers on less favourable terms….)! Nevertheless, as a result, in March 2022, it was announced that a statutory Code of Practice would be introduced, and in January 2023, the government launched a draft Code for consultation.

What guidance does the Code provide to employers?

The draft code sought to provide practical guidance around how employers should act when seeking to change employment terms when the employer envisages dismissal and re-engagement.

The Code provides that:

• employers should consider several things when deciding whether to not to undertake a dismissal and re-engagement exercise. These include:
  • the impact of their proposed changes on employees;
  • the potential damage to the employers relationship with its employees or trade unions;
  • the position risk of strikes; and
  • the risk of losing valued employees.
• employers are required to consult with employees and explore alternative options:
  • as much information should be provided to the employees or their representatives as early as reasonably possible;
  • consultation must be meaningful and should last for as long as is reasonably practicable; and
  • it is good practice for all information to be provided in writing
• employers should not raise the prospect of dismissal unreasonably early;
• phasing in changes is best practice;
• the threat of dismissal should not be used as a negotiating tactic to put undue pressure on employees in circumstances where they are not envisaging dismissal;
• the code will apply regardless of the number of employees affected (or potentially affected) by the proposals; and
• that the code will apply regardless of the employer’s reasons for seeking changes to its employees’ terms and conditions.

The message of the Code is clear – fire and re-hire should only be used as a last resort, and threats of dismissal and re-engagement should only be used when this will genuinely be the method of implementing the change by the employer, and only when this becomes an actual possibility – not at the start of consultation with individuals.

What impact did the consultation have upon the draft Code?

Several changes to the draft Code have been made following the consultation, these include:

• clarification that although the code won’t apply solely in a situation where redundancy is the foreseen outcome should a change of terms and conditions not be agreed, in the situation where an employer is envisaging both that redundancy and dismissal and re-engagement of employees are potential outcomes to the consultation with its employees, that the Code will apply for as long as dismissal and re-engagement remains an option;
• making it clear that if it becomes clear that any of the employees do not agree with some or all of the changes, an employer be required to re-examine its plans taking into account feedback throughout the consultation BUT the requirement to reconsider its business strategy entirely has been removed from the draft Code;
• employers are required to contact ACAS before raising the prospect of dismissal and re-engagement, but clarifying that this does not change the general position that ACAS can be contacted wherever the Code applied; and

What are the consequences if employers fail to follow the Statutory Code?

Unreasonable failure to comply the Code will provide Employment Tribunals will the power to uplift an employee’s compensation for unfair dismissal by up to 25%, in the same way as the Employment Tribunals can currently do for failure to comply with the ACAS Code of Practice on Disciplinary and Grievance Proceedings. For complete non-compliance the starting point would be an automatic 25% increase in the compensation.

Will the Code be effective?

We will wait and see how much impact the Code has on employers’ behaviour when faced with a potential fire and re-hire situation. However, the message is now clearly set for organisations – this is a last resort, and should not be used as an early means of pushing through controversial negative changes to employees terms and conditions of employment. Fire and re-hire is to be used as a last resort, where there are genuine business reasons as to why the negative changes need to be made, not simply because they are desirable for the employer.