New “fire and rehire” code of practice – what do you need to know?

By Nicola Smyrl

Partner

07 March 2023

Article Insights

At the beginning of the year, the Government announced that it would be issuing a new statutory code of practice to “crack down on unscrupulous employers that use controversial fire and rehire dismissal tactics”.  This was prompted by the actions of P&O Ferries dismissing nearly 800 employees without following any form of dismissal process.

The new statutory code of practice has now been published in draft form and is subject to consultation until 18 April 2023.  It is intended to supplement existing ACAS guidance in this area.

The code will apply where an employer wants to make changes to its employees’ contracts of employment and envisages that, if the employees do not agree to those changes, it might dismiss them on notice and offer them re-employment on new terms.

The code does not make the practice of fire and rehire unlawful.  However, it is clear that this approach should be used as a last resort once it is clear that there is no other alternative.  The code’s prevailing message is that where an employer needs to make changes to terms of employment because this is considered to be in the best interests of the business, the most appropriate approach is consultation and negotiation, not threats of dismissal.

In practice, the code does not make any significant changes to the manner in which a responsible employer would ordinarily behave when making changes to terms and conditions of employment.  It has always been the case that to avoid successful claims for breach of contract and/or unfair dismissal, an employer should consult with its employees about proposed changes to terms, and seek to agree the changes with the relevant employees, prior to contemplating termination of the existing employment contract.  In his respect, the code is a useful summary of best practice in this area.

However, once the new code comes into force, where an employee brings a claim arising out of a “fire and rehire” situation and can show that their employer did not comply with the code, the employment tribunal will be able to increase any compensation awarded by up to 25%.  It is therefore important that employers are familiar with the requirements of the code and follow it in relevant circumstances.

Points for employers to be aware of include:

1. The code requires consultation to be meaningful and undertaken in good faith. This means that employers will be required to properly engage with any matters raised during the consultation process and adequately respond.
2. Where employees are reluctant to agree changes, there is a positive obligation on the employer to reconsider its business reasons for the changes and consider alternatives. In essence the code makes it clear that the Government wants employers to carefully think about whether the change is actually necessary.
3. Employers are expected to be open and transparent about the reasons for proposing changes. Careful thought needs to be given as to whether employees have been given enough information to properly engage with the consultation.
4. Employers will be expected to allow sufficient time for consultation to take place. Although the code does not include any prescribed time periods, it does state that a longer consultation is likely to be more effective than a very short process.
5. Whether changes are agreed or imposed, employers should give sufficient notice to enable employees to adjust to the changes. For example, if there is a change to working patterns, consider whether employees with caring responsibilities need extra notice to meet the new requirements.
6. Employers are urged to keep changes under review once they come into force to avoid detrimental impacts on employees, especially those who may have protected characteristics under discrimination law.

The code makes it clear that it is to be read in conjunction with other relevant obligations.  For example, if the changes affect 20 or more staff or if the change follows a business transfer or outsourcing to which TUPE applies, collective consultation obligations would still apply.

It is expected that the code will come into force later this year.  If you have any queries about making changes to terms of employment contract, or any other employment law matters, please contact the Taylor Walton Employment Law Team by email or by calling 01582 731161.

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