Government publishes draft statutory code of practice on dismissal and re-engagement

The practice of ‘fire and rehire’ has been under the spotlight in the past year following several well publicised and controversial cases, which has led to calls for reform of this working practice. As a result, in March 2022 the government announced a new statutory code of practice to prevent “unscrupulous employers” from engaging in this “controversial” practice which has now been published for consultation. The draft Code aims to supplement employers’ existing legal obligations in respect of collective consultation under the Trade Union & Labour Relations (Consolidation) Act 1992 where an employer is proposing to dismiss and re-engage 20 or more employees.

Purpose of the Code

The draft Code of Practice on Dismissal and Re-engagement aims to promote good industrial relations and ensure that employers take all reasonable steps to: (i) explore alternatives to dismissal; and (ii) engage in consultation openly and in good faith with trade unions, employee representatives and/or employees themselves. Emphasising, and focusing on, collaboration and negotiation to reach an agreed solution, the draft Code states that employers should not use threats of dismissal to put undue pressure on employees to accept new terms.

Changes to terms and conditions

Employers may wish to implement contractual changes for a number of reasons, such as:

1. in response to economic pressures or to adapt to changing market conditions;
2. to adjust working patterns for organisational reasons; or
3. due to changes with the ownership of a business.

For a change in contractual terms to be valid, the agreement of the affected employees will usually be required. Where it has not been possible to reach agreement, the changes can be imposed via a dismissal and re-engagement process.

When an employer wishes to make changes to contractual terms, the draft Code emphasises the importance of effective communication of the proposals to employees, including the nature of the proposed changes, the business rationale behind them, what other options have been considered and consulting with employees on these proposals.

Once it becomes apparent that the proposed changes will not be agreed, the draft Code encourages an employer to re-examine their proposed strategy, bearing in mind the very serious consequences of a dismissal and re-engagement process for employees. Factors that should be taken into account include the risks of industrial action, damage to employee relations as well as legal challenge and reputational risk.

Consultation

If an employer decides that it still wishes to implement changes to terms and conditions despite the employees’ indicating they do not agree, the draft Code requires an employer to continue to consult and negotiate for as long as possible, in good faith, in order to try and achieve a solution for all parties, even where the employer anticipate that the proposals are likely to be rejected. “Meaningful consultation” will involve the parties being open, honest and transparent with each other, and giving genuine thought to the proposals and suggestions being raised. The draft Code also states that an employer should be “open and transparent” about the fact dismissal and re-engagement on new terms is being considered. However, if they are not actually contemplating dismissing and re-engaging employees, an employer should not threaten to do so as a negotiating tactic.

If changes are agreed as part of the consultation process, the draft Code states that as well as documenting these in writing, so that all parties are aware of the new terms governing the working relationship, the employer should continue to communicate with affected employees as they adapt to the new terms. The draft Code warns against an employer unilaterally imposing changes other than via a dismissal and re-engagement process because of the legal and reputational risks involved.

Dismissal and re-engagement

If, having engaged in a “meaningful” consultation process, an employer still considers it necessary to dismiss and re-engage employees, the draft Code emphasises they should only do so “as a last resort”. If this scenario arises, the draft Code states that employees should be given as much notice as possible of the dismissal, ensuring compliance with the employee’s contractual notice period at a minimum. Interestingly, it also notes that some employees may require longer notice periods to enable them to adjust to the changes involved such as making changes to childcare arrangements, or planning new journeys to work which can accommodate a mobility need. Employees should be re-engaged as soon as possible, so that there is no break in their continuity of employment, as a matter of good practice under the draft Code.

If the proposed changes relate to a decrease in the need for employees to carry out a particular kind of work, or for them to carry out that work in a particular place, then the reason for their dismissal could be redundancy, even if a new contract is being offered. If that is the case, an employer will need to consider and comply with their obligations to follow an appropriate redundancy process and assess whether redundancy payments may be due.

Breaches of the Code

Whilst the draft Code itself imposes no legal obligations on employers, employment tribunals will be able to take any failure to adhere to the Code into account where relevant to the legal proceedings, and may adjust any compensation by up to 25% to reflect unreasonable non-compliance with the Code by both employers and employees. This is similar to the ACAS Code of Practice on disciplinary and grievance procedures and will operate in the same way. The risk of an increased financial penalty may deter employers from engaging in ‘fire and rehire’ practices without considering the issues raised in the Code.

The consultation closes on 18 April 2023 with the finalised Code being brought into force when parliamentary time allows.

Comment

Although there have been calls by some sides of the debate for the practice of dismissal and re-engagement to be banned outright, the government makes clear in its consultation that the process can play a valid role in labour market flexibility and job preservation and is not being banned. In reality, many of the steps outlined in the draft Code reflect existing ‘best practice’ in this area, although some employers are likely to seek to comply with those additional steps that go further, for example, operating extended notice periods in order to reduce the financial, reputational and employee relations risk that are inherent in dismissal and re-engagement processes.