Fire and Re-hire: Code of Practice now published

The Code of Practice (Dismissal and Re-engagement) Order 2024 has come into force as of 18 July 2024.  Emma O’Connor, Legal Director and Head of Client Training, looks at the impact the new Code will have on business’s freedoms to make changes to contractual terms.

Fire and rehire (or dismissal and re-engagement) is the practice whereby employers seek to change terms and conditions of employment (often for the worse) by dismissing employees under their current terms and then offering them re-employment under a new contract.  This practice often brings conflict between employers and employee and also, where applicable, Trade Unions.  The new Code of Practice does not outlaw fire and rehire.  Instead, it sets out the responsibilities of employers and reaffirms that fire and rehire should only be used as a last resort.  The Code applies regardless of the number of employees affected, or potentially affected, by the proposals.  It also applies regardless of the employer’s reasons for proposing to change terms and conditions of employment.

Although the new Code does not apply to genuine redundancies, it will apply if the employer plans to make redundancies and use dismissal/re-engagement in relation to the same employees.

What is the legal status of the Code?

The Code itself does not have legal status; therefore, a failure on the part of an employer to follow the Code is not a claim in itself, although, a failure to follow the Code (where it applies) can be used as evidence before a court or employment tribunal. However – and this is something to note - if an employee brings an employment tribunal claim to which the Code applies (which includes a claim for unlawful deduction of wages and unfair dismissal),  the tribunal can either:

• increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the code
• reduce any award by up to 25%, where it is the employee who has unreasonably failed to comply 

For the avoidance of doubt, the Code states “Where this code states that a party “must” or must not do something, this indicates that that party is subject to a legal requirement. Where this code states that a party “should” or should not do something, this indicates a recommendation, which is intended to be admissible in evidence and taken into account…”

What should employers do?

The new Code states that consultation with employees over a possible contractual change should happen early, it should be meaningful and it should also be with a view to the parties reaching an agreement.  Consultation should also be for as “long as reasonably possible” to reach an agreement in “good faith”. This could involve the employer giving written information about its plans and next steps to the affected employees or their representatives which could include information about:

• what the proposed changes are, including what the proposed new or revised terms will look like
• who will be affected by the proposed changes
• the business reasons for the proposed changes
• the anticipated timings for the introduction of the proposed changes and the reasons for those
• any other options that have been considered
• the proposed next steps

The Code also makes clear that employers should not use the threat of fire and re-hire as a negotiation tool. If dismissal and re-engagement is to be used it must be clearly explained and only be used after all other options have been explored.  Employer should not forget staff who are on long term sick leave or family leave when consulting.  Employers should also seek feedback on the proposed changes from employees/Unions/representatives and also think about “re-examining” the proposals.

What's the plan for the future? 

Labour have said they want to ban the practice of fire and rehire so again, this Code of Practice may be short-lived. 

The key thing for employers is to plan early – and also take advice.  There are instances where employers may need to collectively consult with staff – remembering collective consultation obligations is not just where redundancy is a possibility.  There may also be obligations to provide and negotiate with Unions. For help and advice as to how the Code could impact your plans and processes, please speak to us.