The practice of ‘fire and rehire’ (i.e. dismissal of an employee and offering re-engagement on new, usually lesser, terms) as a way to facilitate a change to terms and conditions of employment has been under the spotlight in recent years. It is not a new strategy as a way of making changes to employment contracts, nor is it unlawful if handled properly, but the tactic has been subject to increased scrutiny in recent years as cases of misuse by some employers have hit the headlines.
In autumn 2021, legislation curbing dismissal and re-engagement was shelved by the government and replaced with a commitment for updated and more detailed Acas guidance. That guidance (which is not binding) focusses on the importance of thorough and constructive consultation with staff to explore all alternative options to terminating employment, describing fire and rehire as ‘a last resort’.
Fast forward a few months, and the government has announced that we can now also expect a new Statutory Code of Practice on fire and rehire intended to crackdown on the inappropriate use of the tactic, with increased punitive financial sanctions for non-compliance.
As always, the devil will be in the detail. The new Code is expected to set out the consultation process to be followed where there are proposed changes to terms and conditions, and to give practical steps for employers to follow. It is also expected that an additional 25% penalty (on top of the existing punitive sanctions) will be levied where an employer deploys fire and rehire tactics without first having made reasonable efforts to reach agreement through consultation, or where there is otherwise unreasonable non-compliance with the Code.
Until we see the content of the Code, and the associated penalties, we can only speculate on its scope and impact. Much will depend on how the new penalty will operate. It is not clear if the proposed 25% uplift on compensation only applies to awards for failing to adequately inform and consult staff/unions or whether it would also apply to any associated unfair dismissal claim. It is also unclear whether overall compensation would remain subject to existing caps on financial awards, or whether the uplift could allow awards to exceed these limits. Assuming the 25% uplift works in the same way as non-compliance with the established Acas Statutory Code on Discipline and Grievance, financial penalties would remain subject to existing caps. If this is the case, the existence of the penalty may be more style over substance, unlikely to have much impact on affected staff, nor significantly increase an employer’s financial exposure.
So while the new Code will be welcomed by many as a way to seemingly more closely regulate fire and rehire, it remains to be seen if it will be sufficient to deter abuse of this practice. The reality may be that the financial implications of non-compliance with the Code will simply be factored into the cost/benefit analysis and the reality will remain largely unchanged from the current position.
It has not yet been announced when we can expect the new Code to be introduced.