The practice of fire and rehire has hit the headlines and been the topic of political debate in recent years. While the current UK government has rejected calls to outlaw entirely the practice, in early 2022 it committed to introducing a statutory code of practice to set out expected standards of behaviour and best practice.

Our blog from 13 February 2023 considered the draft code as the consultation was launched. We now provide an update on the content of the new Code and explores some challenges and tips for employers faced with navigating a change of terms and conditions once the Code comes into force, including the punitive sanctions for non-compliance, as well as a look ahead to what might change if we have a change to a Labour party government in the next 12 months.

When does the new Code of Practice on fire and rehire come into effect?

This date is currently unknown. The expected date is summer 2024.

What is fire and rehire?

This is the practice of dismissing an employee and offering them a new employment contract on new terms as a way to make a change in their terms and conditions if the employee has not agreed to those changes.

Is fire and rehire lawful?

Yes, dismissal and re-engagement is an established employment practice for changing terms and conditions of employment in the absence of consent. An employer cannot generally make unilateral changes to an employment contract. However, the Code is entitled to give notice to terminate the contract and offer the employee a new contract on different terms.

Is this a dismissal?

Yes, it still counts as a dismissal of the employee under both unfair dismissal and collective redundancy laws. This means that there must be a fair reason for the termination, the employer must act reasonably, and a fair procedure followed. If 20 or more employees are being dismissed, this may also trigger collective consultation obligations under redundancy law.

Why is fire and rehire controversial?

Fire and rehire has come under scrutiny in recent years following reports of misuse by employers using the threat of dismissal (and potential unemployment) as a tactic to push changes through terms and conditions. The practice is also reported as causing conflict between employers, employees, and trade unions, detrimentally impacting industrial relations.

What are the key features of the new Code of Practice on dismissal and re-engagement?

The new Code is intended to provide practical guidance for employers who are proposing to make changes to employees’ terms and conditions and where agreement to those changes cannot be reached.

The Code recognises that dismissal and re-engagement may be needed but sees this as a last resort; the emphasis in the Code is on employers taking all reasonable steps to explore alternatives and to engage in meaningful consultation, and not raising the possibility of dismissal unreasonably early, or using it as a threat. If agreement on a way forward cannot be reached through consultation, the Code requires the employer to re-examine its proposals and to contact Acas for advice before raising the prospect of dismissal and re-engagement.

When does the new Code of Practice on dismissal and re-engagement apply?

The Code applies wherever an employer is considering making changes to the terms and conditions of one of more employee and where, if that employee (or their representative) does not agree to the change, they envisage dismissal and re-engagement as an option.

Interestingly, ‘dismissal and re-engagement’ for this purpose is not confined to offering the dismissed employee re-employment on the new terms. It also covers the scenario where the employer offers to engage other employees on the new terms.

The Code applies regardless of how many employees are affected, and irrespective of the business rationale behind the proposed changes.

The new Code does not apply where the employer only envisages dismissing an employee by reason of redundancy.

What are the obligations to inform and consult?

• With whom should employers provide information and consult?

This will depend on the circumstances.

Where there is a recognised trade union, the information and consultation should be via that trade union. Where such trade union does not exist, the employers should inform and consult with either (i) an existing body of representatives; (ii) a newly elected body of representatives; or (iii) the employees directly. The employer has a choice over which of these is most appropriate, but must act reasonably and comply with any legal obligations.

• What information should be provided and when?

The Code encourages early information sharing, and the provision of as much information on the proposals as is reasonably possible to help understand the proposed changes and the reasons for them. The Code suggests providing details about what the proposed changes are; who will be affected; the business reasons for the proposals; anticipated timings and the reason for this; what other options have been considered; and proposed next steps.

Although absent in the Code, the consultation response recognises that it may not be appropriate to disclosure certain commercially sensitive information, but that they should explain the reasons for non-disclosure as fully as possible where this is the case.

• Does information have to be given in writing?

No, the Code does not require information to be given in writing, but it suggests it is good practice to do so.

• What does meaningful consultation mean?

Consultation should not be a box ticking exercise, but rather a two-way open-minded exchange of views, entered into in good faith with a view to reaching an agreement on the way forward. This means employers should genuinely consider any proposals or alternatives proposed by the employees or their representatives.

• Is there a minimum consultation period under the Code?

No, but it should be long enough as reasonably possible to satisfy the requirement for meaningful consultation. However, employers should keep in mind that if 20 or more employees are impacted then collective dismissal rules may also apply which do have mandatory timescales.

What happens if agreement cannot be reached following consultation?

Where consultation has not resulted in an agreed way forward, but the employer still wishes to implement changes to terms and conditions, the Code says that employers should re-examine their proposals, taking account feedback received during consultation but also considering factors such the impact on their reputation, industrial relations, losing valued employees and the risk of legal claims.

When do employers need to contact Acas?

Under the new Code, employers should contact Acas for advice before raising the prospect of dismissal and re-engagement. The rationale is that Acas can help the parties reach an agreed outcome. This is an interesting addition to the Code, placing an extra obligation on employers and extra pressure on Acas’ resources.

Although not a legal requirement, failure to contact Acas will relevant if a court or tribunal is considering compliance with the Code (see What happens if the Code of Practice on dismissal and re-engagement is not followed?).

How does the new Code fit with collective consultation obligations?

Collective consultation obligations apply where the employer “proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less”. ‘Dismiss as redundant’ has a wide meaning to include any dismissals not related to the individual employee, so extends to where there are proposed dismissals (and re-engagement) for the purposes of changing terms and conditions.

The Code does not override an employer’s collective consultation obligations. So, where the test is met, employers will need to comply with those requirements as well as the Code, and the Code makes this clear. What is less clear is how the two processes interact, and we anticipate that the interplay between collective consultation and the Code could cause some difficulties for employers and scope for legal challenges.

For example, the obligation to collectively consult arises when the employer “proposes to dismiss…” meaning something more than mere contemplation but less than a final decision, whereas the Code applies where “an employer envisages it might dismiss…”, but is premised on dismissal being a last resort, not raised with employees too early, or without prior contact with Acas. This could create a conflict and timing dilemma for employers about when to start collective consultation, with the potential for legal argument about whether a ‘proposal’ to dismiss is more advanced than ‘envisaging’ a dismissal.

Given the penalties associated with collective consultation failures (including potential criminal penalties if the HR1 form is not filed), we suspect that employers are likely to start collective consultation simultaneously with following the Code. This approach also has practical advantages – whilst collective consultation obligations and the principles of the Code are very similar, the Code is less prescriptive about who information and consultation is with (in the absence of a trade union), the information to be provided, and the length of consultation. If collective consultation has not been invoked by employers but agreement is not reached under the Code, employers may find themselves having to repeat an information and consultation exercise to comply with their collective consultation obligations, and it is unclear whether any spent consulting under the Code would count towards minimum collective consultation requirements, adding further time to the process.

However, as collective consultation is triggered by a proposed dismissal, it runs the risk of employers being accused of acting contrary to the spirit and emphasis of the Code, i.e. not to raise dismissal unreasonably early or without prior contact with Acas. We would like to hope that where employers have acted reasonably in their approach to compliance with all of their obligations to collectively consult and in following the Code and have been careful with their language and communications about when dismissal might feature, pragmatism will prevail.

What happens if the Code of Practice on dismissal and re-engagement is not followed?

Any failure to follow the Code does not in itself give rise to any legal claims, but the employment tribunal can take compliance with the Code into account in relevant proceedings, for example when assessing the fairness of a dismissal.

In addition, the employment tribunal will be given power to uplift (or reduce) compensation by up to 25 per cent where there is unreasonable non-compliance with the Code. The uplift will only apply to certain types of claims as specified in the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA)

The list of claims includes unfair dismissal. It is currently unclear whether this uplift would allow compensation awards for unfair dismissal to exceed the current financial caps under unfair dismissal law. Assuming the 25 per cent 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.

Interestingly though, in response to the consultation, the government has said it intends to legislate to amend TULRCA so that the uplift can also be applied to protective awards for non-compliance with collective consultation obligations. The protective award is up to 90 days of gross actual pay per employee and is intended to be punitive linked to the extent of non-compliance. A 25 per cent uplift would increase financial exposure to up to 112 and a half days of gross actual pay per employee (over 30 per cent of the annual wage bill for employees eligible for an award).

It is this potential uplifted protective award which perhaps gives compliance with the Code some teeth, although it also reinforces the need to get collective consultation right too (see How does the new Code fit with collective consultation obligations?). However, outside the confines of collective consultation i.e., where under 20 employees are affected, the financial penalties may not be sufficient to deter bad practice.

What will Labour do?

The Labour Party does not consider the Code goes far enough and is proposing a complete ban on fire and rehire. We suspect there would be some pressure on them to soften this approach, but if we see a change in government at the upcoming general election, we can expect fire and rehire to be back on the agenda.

What should employers be doing now?

1. When contemplating a change to terms and conditions, ensure there is a well-considered strategy in place to ensure compliance with the Code (once in force) and, if the changes affect 20 or more people, the interplay with collective consultation obligations.
2. Ensure all relevant people are familiar with the Code, and particularly the additional steps of revisiting plans and needing to contact Acas, and the extra time this may entail, managing expectations with senior management in this regard.
3. Be open minded when looking at changes to terms and conditions. While this is nothing new, the Code’s emphasis is on doing as much as possible to reach agreement without resorting to dismissal and re-engagement. Employers will need to be seen to demonstrate flexibility and open-mindedness.