What employers need to know about the proposed fire and rehire statutory Code of Practice

In January, the UK government published a new draft Code of Practice on Dismissal and Re-engagement, which caused a heated debate among businesses and workers. The Code outlines a prescriptive procedure employers must follow when seeking to change employees’ terms and conditions, such as significant adjustments to working hours or pay.

While the Code has yet to be finalised, it is expected to be implemented after the ongoing consultation period ends on April 18, 2023. The Code will likely considerably impact how employers manage contractual variations and could herald a move away from the controversial fire and rehire practice.

That practice gained attention during the pandemic as more and more employers used this strategy to reduce costs in a difficult economic climate and was brought to the forefront by P&O Ferries. In response to this and the strong public sentiment against fire and rehire, the Government commissioned a report by ACAS, ultimately leading to this draft statutory Code of Practice.

The draft Code sets out a clear process for employers to follow when proposing changes to employees’ terms and conditions. It intends that employers will, in good faith, engage in meaningful consultation providing detailed information, so employees understand the proposed change and the rationale behind it. Businesses must consider all alternatives that could achieve their objective, consider any options presented by employees, and continually review and reflect upon their business reasons for the change. The Code emphasises that employers should not use threats of dismissal as a negotiating tool and that unilateral changes to contracts are to be avoided, where possible, as these are likely to harm industrial relations and give rise to legal liability.

Under the proposed Code, dismissal and re-engagement should be a last resort once all other options have been exhausted. Where this is the case, employers must provide as much notice as possible, the contractual notice period as a minimum, and consider individual employees’ specific needs.

The Code further recommends that if multiple changes to terms and conditions are sought, they should be implemented (where possible) over time to lessen the immediate impact on employees. It also advises that if the reason for changing terms ceases to be relevant, original terms should be reintroduced.

While the Code will not impose legal obligations on employers and a failure to comply will therefore not give rise to any standalone claim, any such failure may result in an uplift to compensation of up to 25% in certain Employment Tribunal claims, including unfair dismissal.

Once implemented, the Code will make it more difficult for unscrupulous employers to enforce new terms through fire and rehire ultimatums. However, the Government stopped short of banning the fire and rehire practice entirely as it recognised that, in some circumstances, employers need the flexibility to make crucial changes to save jobs. The Code attempts to balance that valid business need and the detrimental impact upon employees. Fire and rehire undoubtedly has negative consequences that can harm a Company’s long-term success, including decreased employee morale, talent retention issues and legal implications. The Code should assist employers in navigating these consequences and mitigating risk.

Introducing the Code of Practice on Dismissal and Re-engagement will be a significant development that will considerably impact how UK employers handle changes to terms and conditions. Employers must be aware of the Code’s recommendations and, where possible, adhere to these to minimise the risk of legal action and maintain positive employee relations.