Updated draft code on “fire and rehire” published

The process known as “fire and rehire”, where employees are let go and then offered to return under new contract terms, is one of the riskier and more stressful strategies an employer might decide to use. For most employers, it is only initiated as a last resort, when changes to contractual terms are essential and employees’ agreement cannot be obtained. Even when re-engagement is offered (on new terms), the termination of existing contracts still constitutes a dismissal, and employees may bring claims such as unfair dismissal rather than accepting the new terms.

Fire and rehire exercises tend to be very unpopular with the workforce. The practice received attention during Covid, when it was felt that some employers were forcing detrimental changes on staff by dismissing and rehiring, leaving employees with a stark choice between accepting less favourable terms or losing their income entirely at a time of great economic uncertainty. Although not strictly speaking a fire and rehire exercise (as staff were not rehired, but replaced by agency workers), P&O Ferries’ dismissal of 800 workers without consultation in March 2022 lent further weight to calls from some quarters to ban the practice entirely.

Although falling short of an outright ban, the Government announced shortly after the P&O dismissals that it would put in place a statutory code of practice on using fire and rehire to make changes to employees’ contracts. The draft Statutory Code of Practice on Dismissal and Re-engagement was published in January 2023 and feedback sought via a consultation document. Following the close of the consultation, a revised Draft Code on Dismissal and Re-engagement was published on 19 February 2024.

The code will apply when an employer is considering making changes to any of its employees’ contracts and the employer envisages that, if agreement cannot be reached, it might opt to dismiss and offer re-engagement on new terms. The code will not apply in situations where an employer is contemplating dismissing employees by reason of redundancy.

The revised version has been made more concise and reordered in an attempt to make it more accessible. Among other amendments, the requirement to phase in contractual changes has been downgraded to a recommendation and the requirement for an employer to re-examine its business strategy before making a final decision to dismiss has been removed (although employers should still re-examine their proposals at this stage).

The key requirements of the draft code are set out below:

• Employers should explore alternatives to dismissal and engage in meaningful and transparent consultation with staff to try to find an agreed way forward, moving to dismissal and re-engagement only as a last resort if agreement cannot be reached.
• Where there is a recognised trade union, employers should consult with the trade union. In all other circumstances employers must consult either employee representatives or the employees individually, depending on what is reasonable in the circumstances (and bearing in mind any other relevant legal obligations relating to employee consultation, which will continue to apply).
• The code sets out details of the information which must be provided as part of the information and consultation process.
• Minimum time periods are not specified, but the code advises that a longer consultation period is more likely to result in agreement being reached.
• The code requires employers to let employees know if they intend to dismiss and offer re-engagement if agreement cannot be reached, but not to do so unreasonably early or use the prospect of dismissal as a negotiating tactic if it is not, in fact, envisaged.
• Acas should be contacted for advice before the prospect of dismissal and re-engagement is raised with employees.
• If it becomes clear that employees will not agree to the changes but the employer is still of the view that the changes are necessary, the employer should at that stage re-examine its proposals, taking into account feedback received during the consultation. The code sets out a (non-exhaustive) list of factors which should be considered, including whether proposed changes may have a greater impact on employees who share protected characteristics.
• Where the employer decides to proceed with contractual changes in the absence of agreement, some guidance is provided on unilateral imposition of new terms and on dismissal and re-engagement.
• Where employees are dismissed and offered re-engagement, the Code suggests that employers consider:
  
  
  • Providing longer notice periods to allow employees to make any necessary arrangements (eg changing childcare arrangements),
  • Offering practical support to employees (such as career coaching or counselling),
  • Committing to reviewing the changes at a fixed point in the future,
  • Phasing in changes, and
  • Inviting feedback from employees as they adapt to the new working arrangements.
    
    

Failure by employers to follow the code will not enable employees to bring standalone claims, but relevant parts of the code must be taken into account by tribunals in reaching decisions. In addition, Tribunals can increase certain awards by up to 25 if an employer has failed unreasonably to comply with the requirements of the code.

The draft code is expected to come into force at some point this summer. It is worth noting that the Labour party has stated an intention to ban fire and rehire outright if it comes into power.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2024