Updated Code on ‘Fire and Rehire’ ? Cracking Down or Lacking Bite?

In last week’s update on Labour’s proposed policy reforms, we discussed action taken by the government in response to P&O Ferries’ dismissal of nearly 800 employees in 2022 without due consultation.

The government first announced a new statutory code on 29 March 2022 which sought to introduce measures around “fire and rehire” practices ? a term referring to when employers dismiss employees and then re-engage them on new contracts with often less favourable terms. There then followed the first draft Code of Practice on Dismissal and Re-engagement, which was published over a year ago in January 2023.

Last week, on 19 February 2024, following a 12-week consultation, the government published an updated draft Code of Practice on Dismissal and Re-Engagement with the intent to “crack down on employers mistreating employees”.

The draft code states that:?

The purpose of this Code is to ensure 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. The Code also seeks to ensure that the employer does not raise the prospect of dismissal unreasonably early, or put undue pressure on employees by threatening dismissal where this is not, in fact, envisaged.?

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The updated draft sets out guidance to employers and employees (and/or their representatives) where the employer is considering changes to an employee’s terms of contract and, if some or all of the changes are not agreed the employer, may opt for dismissal and re-engagement of the employee – the practice commonly known as “fire and rehire”.

The guidance clarifies the requirements on employers when seeking to change employees’ terms and conditions with the aim to ensure employees are properly consulted and treated fairly.

The updated draft Code of Practice on Dismissal and Re-engagement requires employers to:

1. Contact Acas at an early stage in the consulting process – before fire and rehire has been raised with the workforce.
2. Provide information regarding the proposals "as early as reasonably possible" to enable meaningful consultation.
3. Consult “for as long as reasonably possible” in “good faith with a view to reaching an outcome” even where agreement seems unlikely. There is no minimum time period of consultation for collective redundancy.
4. Explore alternatives to fire and rehire – employers must engage in meaningful discussion focused on reaching an agreement.
5. Not threaten dismissal to coerce employees into new (and often less favourable) terms and conditions.
6. Only use dismissal and reengagement where there are no alternative options available to the employer having re-examined the initial proposals. “The employer should treat this option as a last resort.”

?The updated draft code also advises that it will be best practice for employers to:

1. Provide information in writing ? however employers should also consider the type and style of communication used.
2. Phase-in changes (this was initially set out as an obligation in the original draft code).

The code will not apply in redundancy situations alone but will apply where redundancy is considered along with fire and rehire tactics, and will continue to apply for as long as fire and rehire remains on the table.

It should be noted that the code will apply regardless:

1. “of the number of employees affected or potentially affected by the employers proposals”; and
2. “of the employer’s reasons for seeking changes to its employees’ terms and condition”

Whilst?there is no stand-alone claim for a failure to follow the code, it will be taken into account by employment tribunals in applicable cases (including unfair dismissal claims).?If a tribunal finds an employer has unreasonably failed to comply with the code it will have the ability to increase any award it makes by up to 25 per cent.

Parliamentary approval of the new code is expected by late summer 2024 when final details of the new code will be provided. There have however already been concerns raised by both the TUC and Unite that the updated code does not go far enough as a deterrent and “lacks bite” and that fire and rehire should be “against the law with serious penalties attached”.

Please do get in touch if you would like to discuss this topic or any other matter with us at any time.

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