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The government has launched a consultation that could introduce restrictions on the ability of employers to use “fire and rehire” tactics to force through contractual changes to their staff's employment.
A draft of the new Statutory Code of Practice on “Fire and rehire” has now been published and will be the subject of the ongoing consultation, which is due to conclude on 18th April 2023.
What is “fire and rehire”?
“Firing and rehiring” refers to the practice of making changes to employment terms by way of dismissal and re-engagement on new terms. Where an employee does not agree to proposed contractual changes, their employment is termination and they are offered new employment on the new, and usually less favourable, terms.
Some employers adopted this tactic during the pandemic in response to falling profits and rising employment costs. The Code of Practice has now been prepared following significant pressure put on the government regarding such tactics being deployed in the wide-scale dismissal of P&O Ferries employees last year.
What rules does the draft Code of Practice introduce?
The draft code details the meaningful consultation that an employer should undertake when it wishes to implement contractual changes and anticipates that, should employees refuse the changes, it might dismiss and re-engage.
The draft code states that when employees refuse the new terms, an employer should reassess its plans and consider the possible consequences for employees. It also states that the employer should consider the negative impact of taking unilateral action, including damage to reputation and industrial relations, and consider alternative options for achieving its goals.
Where an employer chooses to proceed with the changes to terms, the code states that they should disclose as much information about the changes as possible to employees and closely consult with employees. It also states that the threat of dismissal must not be used as a negotiating tactic to pressure employees where this is not a genuine option under consideration.
As a last resort, if an employer does opt for dismissal and re-engagement, the code states that they should give as much notice of dismissal as possible. The employer should also assess whether certain employees could require longer notice to make arrangements which may allow them to accept the changes, such as proposals that impact childcare arrangements or commutes.
What will the consequences be for breaching the Code of Practice?
Employment tribunals and courts will be required to consider the code when considering relevant cases. Although the code imposes no legal obligations, tribunals can increase or reduce compensation by up to 25% for unreasonable non-compliance. This is much the same as the tribunal’s current right to do so for a failure to follow the Acas Code of Practice on Disciplinary and Grievance Procedures.
The Advisory, Conciliation and Arbitration Service Chief Executive, Susan Clews, commented that “fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations”. Employers are encouraged to obtain agreement with staff before making changes where this is possible. Therefore, it could be in an employer’s interest to follow the code, as this could help maintain working relations and bolster staff morale, as employees will better understand the reasoning behind the changes.
Limitations for the Code of Practice
The code won’t replace (though it may complement) current legal requirements in a fire and rehire scenario, such as the collective consultation rules in the Trade Union and Labour Relations (Consolidation) Act 1992. It also won’t apply to employees dismissed because of redundancy (as defined in the Employment Rights Act 1996). Therefore, the code will perhaps be most relevant outside of redundancy situations but where the numbers of employees impacted are too low to spark collective consultation rules.
In some areas, the code goes beyond current collective consultation rules that apply when an employer proposes wide-scale contractual changes. For example, the code asks employers to continue to consult with employees on the changes after any new terms have been entered into. The code also states that employers should consider extending notice periods for dismissal or giving employees additional time to make alternative arrangements that may allow them to accept the changes, such as on proposals that impact childcare arrangements or commutes.
Claims for protective awards by employees (i.e. where the employer has breached collective consultation requirements) are not as of yet included in the list of claims and awards that a tribunal would have the power to uplift compensation on, so it is unclear how much of a deterrent the code would be in these circumstances.
We will keep an eye on this consultation and update you with any further news after this closes on 18th April 2023.