On 24 January 2023, the government published a draft Statutory Code of Practice on Dismissal and Re-engagement (the Draft Code). This sets out proposals for what would become specific employer responsibilities when seeking to change employment terms and conditions by dismissing and re-engaging, commonly referred to as “fire and rehire”. The government has launched a consultation seeking views on the Draft Code which will be open until 18 April 2023.
When would the Draft Code apply?
It is proposed the Draft Code would apply when:
- an employer wants to make changes to its employees’ contracts of employment; and
- the employer envisages that, if the employees do not agree to the changes, it may dismiss them and either (i) offer them re-employment on the new proposed terms or, alternatively, (ii) engage new employees to perform the relevant roles on the new terms (whether those new hires are sourced internally or externally).
The Draft Code is not intended to apply to situations where the employer’s main intention is to reduce the number of their employees.
The objectives of the Draft Code
The Draft Code does not seek to prohibit dismissal and re-engagement procedures as a whole. Instead it attempts to find a balance between labour market flexibility and worker protections. The government considers that, in some situations, dismissal and re-engagement can play a valid role for businesses who need the flexibility to use this option to meet changing business requirements. Indeed, on occasions it may be necessary in order to retain as many jobs as possible.
However, to protect employees, the Draft Code seeks to ensure that employers take all reasonable steps to explore alternatives to dismissal before considering fire and rehire. In particular, it expects employers to engage in open and meaningful consultation with trade unions, employee representatives and/or individual employees. The Draft Code is explicit that employers should not threaten dismissal as a tactical approach, simply to pressure employees to agree to new terms.
The Draft Code sets out a step-by-step process for employers to follow when consulting meaningfully about changes and exploring alternatives to dismissal. The Draft Code recognises that different steps may apply to different scenarios and that many employers likely already proceed in this way as a matter of best practice. The Draft Code’s step-by-step process is:
- Communicate the desire to change terms and conditions to employees.
- If employees do not accept the new terms without negotiation, employers should re-assess the business strategy behind changing terms.
- Engage in meaningful and good faith consultation by informing employees of the employer’s objectives and of the nature of proposals, as well as the consequences of unilateral imposition or dismissal if negotiations fail.
- Ensure that enough time is given to this consultation period.
- Dismiss and re-engage only as a last resort.
- Review changes and provide practical support to employees.
The Draft Code in practice
The Draft Code is based on ACAS advice and, if implemented, will become a statutory code of practice under the Trade Union and Labour Relations (Consolidation) Act 1992. The Draft Code does not strictly impose any legal obligations on employers but would be taken into account by tribunals in assessing, for example, the fairness of dismissals. Much of the Draft Code represents what would already be regarded as good practice. That means adopting a similar approach to that set out in the Draft Code would already be important in minimising the risk of an unfair dismissal finding. Perhaps the most notable change the Draft Code seeks to implement is therefore that, if a court or tribunal finds that an employer (or potentially an employee) unreasonably failed to follow the Draft Code, for example by failing to engage in meaningful consultation, it would have the power to increase (or decrease) an award by up to 25%.
Where 20 or more dismissals are being considered at an establishment, the legal obligations relating to collective redundancy consultation must be complied with as well as the Draft Code. In addition, if a trade union is recognised for the purposes of collective bargaining, the employer should comply with its collective bargaining obligations in the usual way, independently of the Draft Code.
What does this mean for employers?
The process set out in the Draft Code is likely to reflect the approach taken by many businesses when faced with a need to impose changes to employment terms. Most employers already regard dismissal and re-engagement as a last resort. However, the potential compensatory uplift in the Draft Code will be a significant incentive for employers to consider the procedures they adopt very carefully to ensure that they take all reasonable steps before dismissing and re-engaging.
For the moment, the Draft Code has only been published for consultation purposes. No legal change has yet been implemented. Despite that, we would encourage employers to approach any decision on firing and rehiring carefully and to be mindful of the provisions of the Draft Code. There is no doubt that “fire and rehire” tactics can have a significant negative reputational impact and cause long term employee relations issues as witnessed in recent years.
In the meantime employers, employees and any other interested parties should take the opportunity to review the Draft Code and provide their input before the consultation closes on 18 April 2023.
If you would like any advice on changing terms and conditions of employment, please reach out to a member of our team and we would be happy to assist.