Updated Code of Practice on “Fire and Rehire”

An updated draft Code of Practice has been presented to Parliament regarding the practice of dismissal and re-engagement (known colloquially as “Fire and Rehire”). The previous draft Code was published in 2023, but following the public consultation last year, there have been some slight amendments.

If approved by Parliament, this Code will be brought into effect as a Statutory Code of Practice.

Background

Contracts of employment are legally binding agreements and their terms cannot usually be changed without agreement from both the employer and the employee.

Where employers and their employees cannot reach an agreement on a proposed contractual change, an option employers can take to amend the employment contracts is to dismiss employees and re-engage them on new contracts which contain the proposed changes.

This practice can be quite risky, inviting potential claims of unfair dismissal from dismissed employees who refuse to accept the new contract. For that reason, this practice is often left as a last resort.

Following calls for an outright ban on this practice, the Department for Business, Energy & Industrial Strategy (BEIS) announced on 29 March 2022 that a new Statutory Code of Practice would be published. The previous draft was published in January 2023.

The proposed changes

Although the updated Code is based on Acas advice, once approved it will be issued as a Statutory Code of Practice under section 203 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992). Although a failure to comply won’t give rise to a standalone claim, the statutory nature of the Code means that there will be financial consequences where an employer has failed to take the Code into account, with courts and tribunals having the power to apply an uplift of up to 25% on compensation awarded in a relevant claim.

• The Code applies where an employer:
  • Considers making changes to one or more employees’ contracts of employment; and
  • Envisages that, if the employee and/or representative does not agree to some or all of the changes, that they may dismiss and re-engage that employee.

These are some of the key points that remain in the latest version of the Code which has only seen marginal changes from the previous draft:

• The Code applies as soon as fire and rehire becomes a potential option. Predominantly, as mentioned above, this will refer to changes in terms and conditions, but where redundancy and fire and rehire are both considered as options in a consultation, the Code will apply to the extent that fire and rehire is a possibility.
• Employers are required to contact Acas before they raise the potential of fire and rehire with the workforce (whereas the previous draft had suggested this notification only need take place once it was clear agreement could not be reached);
• Employers are encouraged, as good practice, to give information in writing;
• Fire and rehire is expressly prohibited from being used as a negotiation tactic, threats of dismissal shall not be used to coerce employees into agreeing new terms and conditions;
• Employers are required to consult “for as long as reasonably possible” prior to exercising the option to fire and rehire. Employers are expected to have genuine and meaningful consultation, which includes exploring alternatives to dismissal and re-engagement.
• The Code must be followed alongside any other relevant statutory guidance, obligations or regulations. This includes obligations to provide prescribed information for the purposes of collective consultation under TULRCA 1992 and information-sharing and consultation arising in relation to a transfer of employment if applicable.

Comment

The Code generally reflects what many practitioners will see as best practice, and will be familiar to many employers who have completed similar exercises in the past.

The recommendation to contact Acas at such an early stage may come as a surprise to employers, but the obligation goes no further than to contact Acas.

The main risk if the Code is approved will be where employers may need to make urgent changes to terms and conditions and may not consider that they have the time to engage in meaningful consultation as required by the Code. This could enhance the value of any potential dismissal claims that arise out of any subsequent changes to terms.

Despite the risk of an uplift of up to 25% in failing to abide by the Code, the Code also allows tribunals to reduce compensation by up to 25% where an employee has unreasonably failed to comply with it in much the same way as applies to the ACAS Code of Practice on Disciplinary and Grievance Procedures which most employers will be familiar with.