‘Fire and rehire’ is a shorthand term used for the practice of dismissing and re-engaging employees, a process carried out when an employer wants to make changes to an employee’s terms and conditions of employment but can’t agree those changes with the employee.
The government has always made it clear that using the threat of fire and rehire as a negotiating tactic is unacceptable, but following recent high-profile cases, including the scandal over the firing of 800 workers by P&O Ferries in March 2022, the government has recognised the need for greater clarity for employers.
In February this year the government published a response to its consultation on a draft Code of Practice on dismissal and re-engagement. The Code, which details how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms, is expected to come into force in July this year.
When will the Code of Practice apply?
The Code will apply in situations where employers:
- are contemplating making changes to their employees’ terms and conditions; and
- envisage that if the employees do not agree to some or all of the changes, it might dismiss them and offer to re-engage them on a new contract of employment incorporating those changes.
The Code will apply regardless of the size of the employer or the number of employees affected by the proposed changes.
The Code will not apply where an employer is only envisaging making employees redundant. However, if the employer is considering both redundancy and/or firing and rehiring as potential options then the Code will apply.
What does the draft Code of Practice say?
The Code of Practice does not ban the practice of firing and rehiring, instead its purpose 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”. The use of fire and rehire should be used as a last resort, having exhausted all other options.
The key provisions of the Code are:
Information and Consultation
- If an employer is considering a fire and rehire exercise, they should undertake a consultation process and consider any reasonable alternatives to the proposed changes. Dismissing and re-engaging should be the last resort.
- They should inform and consult with all employees affected, and any relevant trade unions.
- Employers should consult for as long as reasonably possible in good faith, with a view to reaching an agreed outcome and share, as early as possible, as much information regarding the proposals as reasonably possible.
- The Code states that it is good practice for employers to give information in writing rather than verbally.
- If the changes are not agreed, the employer should re-examine its proposals in light of the workforce feedback.
A requirement to contract Acas
Before employers raise the prospect of dismissal and re-engagement with their workforce, they are required to contact Acas. It is not yet clear what role Acas is expected to play in the process, but Acas should be involved from an early stage.
Consider longer notice periods and practical support
The focus of the Code is that employers should act responsibly when dismissing and re-engaging. This includes giving as much notice of termination as “reasonably practicable”.
Other points to note
The threat of dismissal should not be used as a negotiating tactic to put undue pressure on employees in circumstances where the employer is not considering dismissal.
What is the effect of not following the Code of Practice?
There is no stand-alone claim that may be brought for failing to follow the Code, but the ET can take compliance with the Code into account in relevant proceedings, for example when assessing the fairness of a dismissal.
In addition, if an employee brings a relevant ET claim arising from a hire and rehire situation (such as unfair dismissal or discrimination), then the ET can:
- increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the Code; or
- reduce any award by up to 25%, where the employee has unreasonably failed to comply with the Code.
A draft order has also recently been published which provides that where there is a failure to follow collective consultation requirements under TULRCA, the ET may increase (or decrease) any protective pay award made.
Does the Code affect existing legal obligations?
The Code does not remove or amend the existing legal obligations that already apply to employers in relation to “fire and rehire” exercises. This is primarily:
- where applicable, the obligation to follow the collective redundancy consultation rules imposed by the Trade Union and Labour Relations (Consolidation) Act 1992; and
- unfair dismissal risks. If the employee has 2 years’ service, they can bring an unfair dismissal claim regardless of whether they have accepted the offer of the new contract. If the employee is successful in this claim, the ET could order that the employer reinstates them on their original terms.
Conclusion
Whilst the new Code does not alter the basic existing legal framework governing this area, it does add a new layer of complexity, and employers should consider the Code at an early stage when planning a fire & rehire process. If in doubt seek legal advice, as firing and rehiring should only be used as a last resort and will undoubtedly be scrutinised carefully by tribunals if it becomes litigious.
Finally, it is worth noting that the Labour Party pledged in its Employment Rights green paper to outlaw the practice of fire and rehire altogether, so there may be further changes down the line if Labour comes into power…….watch this space.
The draft Code of Practice can be found here.
Explore more updates in this issue of Employment Matters below.
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