Fire and re-hire – where are we now?

Fire and re-hire is a controversial strategy used by employers. It often attracts wide press attention and negative publicity, for example when used by P&O Ferries in 2022. The government has now introduced a "Draft Code of Practice on Dismissal and Re-engagement" (the "Code") and an accompanying consultation paper. In this alert we look at the key parts of the Code.

What is the purpose of the Code?

The purpose of the Code is to ensure that an employer takes all reasonable steps to explore alternatives to dismissal and engages in meaningful consultation with trade unions, other employee representatives or the individual employees in good faith, with an open mind, and does not use threats of dismissal to put undue pressure on employees to accept new terms, instead of seeking to find an agreed solution.

In what situations will the Code be relevant for employers?

It is envisaged that the Code will provide practical guidance to employers and employees in situations where an employer:

considers that it 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 and either offer them re-employment on those new terms or engage new employees or workers to perform the relevant roles on the new terms.

The Code does not apply to genuine redundancy situations.

What is its legal status?

The Code does not impose legal obligations but will be taken into account by a court or tribunal where it is relevant to the proceedings i.e. if there is a dismissal and re-engagement scenario the court will look at whether an employer and employee followed the Code.

Importantly, whilst it does not impose a legal obligation it does have "teeth" as there can be financial implications for a failure to comply. Specifically, a tribunal can:

increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the Code; or
decrease any award by up to 25%, where it is the employee who has unreasonably failed to comply.

What are the key steps set out by the Code, which employers are advised to follow in a potential "fire and re-hire" scenario?

Information and consultation with trade unions, employee representatives or employees

The employer should provide information to and consult with employees or their representatives about proposed changes. It should not be considered a single event but should be viewed as an ongoing process. Even if the employer considers that the proposed change is unlikely to be agreed, the employer should continue to consult and negotiate for as long as possible in good faith in order to try to seek a resolution.

Reconsidering the need for changes

Where no agreement has been reached under the previous step, the employer should re-examine its business strategy and plans in light of the potentially serious consequences for employees. The Code sets out factors which the employer should consider, depending on the circumstances.

Providing information for employees

The employer should consider what further information it could share with employees or their representatives which might help reach consensus. They should share as much information as reasonably possible.

Consultation

A meaningful process should be followed on both sides with a view to reaching an agreement and avoiding the need for dismissals. The timing of the consultation process will be dependent on the circumstances.

Options:

If changes are agreed

The employer should put the changes in writing, setting out clearly what the amendments are and when they will commence.

Unilateral imposition of new terms

If it has not been possible to reach agreement with employees or their representatives to the proposed new terms, some employers may decide to go ahead and try to impose those terms anyway. They may do this either because the existing contract gives them a power to change terms unilaterally, or they may attempt to do it without such a power. There are significant legal risks to the employer stemming from this approach, and we recommend legal advice is sought.

Dismissal and re-engagement

An employer who has participated in a thorough and open information and consultation process; has listened carefully to and explored fully any alternative proposals; and has concluded that it still needs to make the changes to the employment contracts, might at this point, as a last resort, decide to dismiss the employees and offer to re-engage them on the new terms (or engage new employees for the same roles on those new terms).

An employer should comply with any redundancy obligations, set out the new terms in writing and re-engage employees as quickly as possible.

Next steps

The consultation on the Code closes on 18 April 2023. The government has not set out a specific timeframe for bringing the Code into force, simply "when parliamentary time allows". We'll keep you updated.

This alert contains extracts taken directly from the Code, to view the full Code please click here.

If you have any questions on this topic or any other employment law issue please get in touch with Paul Reeves, Leanne Raven or your usual Stephenson Harwood contact.

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