Fire and rehire – amended Code of Practice published

Firing and rehiring – dismissing employees under their current contracts and offering them re-employment under new (lesser) terms reached mainstream headlines in 2022 following the actions of P&O Ferries. Following consultation, the government published a new draft Code of Practice for employers. That Code has now been updated. Emma O’Connor, Director, discusses the new updated Code and what it means for employers when it comes to firing and rehiring.

Back in 2022 when the practice of firing and rehiring came under the spotlight, the government indicated that it would publish a Code of Practice which, whilst not prohibiting the practice, would set out some ground rules for employers to follow with the “teeth” of compensation increase, if it was not. Under the practice of firing and rehiring, employees are given notice under their current terms, being offered a new set of terms which would commence when the notice period ends. If they do not accept the often less favourable terms offered, they are (usually) dismissed.

Following consultation in 2023, a draft Code was drawn up and it is amendments have now been published. Any Code would need Parliamentary approval with a likely implementation date of late 2024.

Why a Code of Practice on fire and rehire?

The purpose of the Code is to “ensure employers take all reasonable steps to explore alternatives to dismissal and re-engagement and engage in meaningful consultation with a view to reaching an agreed outcome in good faith and with an open mind”. Whilst not seeking to abolish the practice, it is certainly something that, in future, employers will have to enter into with planning and purpose or face financial implications.

What does the revised Code say?

In particular, the following elements of the draft Code should be considered:

• Firing and re-hiring of employees should only be used as a “last resort”;
• Employers should explore alternatives to dismissal and dismissal, through fire and rehire, should not be used as a threat;
• ACAS will play an important role, as employers will be required to contact ACAS before they raise the issue of fire and re-hire with employees;
• Although not technically applicable in a redundancy situation, the Code will apply if an employer is considering both redundancy and fire/rehire in relation to the same employees, so something to factor into redundancy consultation exercises;
• Moreover, employers will need to consult on their fire/rehire proposals;
• Consultation on proposed fire and rehire should be for “as long as reasonably possible”, this to my mind will require employers to make a judgment call as to when consultation is “as long as reasonably possible”. This may be impacted by other consultation obligations.  Planning and using timetables will be important;
• Consultation should be “meaningful” – a phrase we are used to when we think about collective consultation – and be “in good faith”;
• Employers should share information about the proposed fire and rehire as soon as possible;
• Consultation could be directly with staff or with either a Trade Union or with elected staff representatives (as appropriate) – so think about if representatives need to be elected and how this fits with consultation processes more generally;
• Remember too that the Code does not remove the existing legal obligations such as collective consultation obligations, so think about possible triggers to collective consultation.

What if an employer does not follow the Code?

Not following the Code will not be a standalone claim. This means there will be no distinct or separate claim an employee can bring in an employment tribunal if the Code has not been followed.  However, if an employee brings a claim for, for example, unfair dismissal following a fire and rehire and the Code has not been complied with, then any award of compensation could be increased by as much as 25%. On the flip side, if an employee has failed to comply with the Code, then their compensation could be decreased by as much as 25%.

What to do now?

The process of fire and rehire is a contentious one. For now, we wait to see if the Code is passed and when it will be implemented – we expect, later this year. Labour say they plan to prohibit the use of fire and rehire, but do not say how. In the absence of a Code, employers should always remember good practices such as consulting (including under collective obligations), acting fairly and reasonably in the circumstances, as there are still legal consequences such as unfair dismissal or protective award claims to consider, as well as employee relations more generally – not to mention bad publicity – which are applicable now. For advice on contract reviews and their implementation, please speak to our employment law team today on [email protected].