The government has published a draft Code of Practice on Dismissal and Re-engagement.
A consultation period has been launched seeking views on the Code, which has come about in the wake of the P&O dismissals of around 800 employees without any consultation (which we reported on in our May 2022 newsletter). Consultation closes on 18 April 2023.
Dismissal and re-engagement, otherwise known as ‘fire and re-hire’, is the practice of forcing through changes to employees’ terms and conditions of employment by terminating employment and offering re-engagement on new terms. It is a potential valid option and potentially a fair reason to dismiss by an employer where it has a business need to make changes and those changes cannot be agreed with its employees.
The proposed Code does not apply where an employee is dismissed where there is a genuine redundancy, but where both following conditions apply:
- An employer considers it wants to make changes to its employees’ terms and conditions of employment; and
- If the employees do not agree to the changes, it “envisages” that it might dismiss them and offer them re-engagement on the new terms or engage new employees or workers to perform the relevant roles on the new terms.
Thus, employers will not be able to circumvent the Code by collectively dismissing staff and engaging new hires who are prepared to work under less favourable terms (as P&O did).
The Code is designed to set out good practice to be followed when needing to make changes to terms and conditions. It will apply regardless of the numbers of employees affected and regardless of the employer’s business objectives.
Other legal obligations, e.g., collective redundancy consultation, may overlap. Each of these other legal obligations should be adhered to independently of the Code.
The Code is detailed and there are several recommendations.
What are the recommendations?
- Employers should engage in full and meaningful consultation and negotiate with a relevant body (i.e., recognised trade union, employee representatives or individual employees) for as long as possible to seek a resolution.
- To facilitate this, employers should share as much information as early as reasonably possible so the employees can understand the need for the changes, ask questions and make counter proposals (which currently only applies if collective consultation obligations are triggered). The employer should be prepared to engage in a genuine exploration of whether any proposals put forward by the employees are workable or will meet the employer’s objectives.
- If agreement cannot be reached, the employer should actively re-examine its business strategy and whether the changes are needed, considering the serious consequences to the employees.
- If an employer decides to dismiss and re-engage, (which the Code says should be a ‘last resort’) it should give as much notice as possible, treating an employee’s contractual notice period as a minimum. Where multiple changes to terms are being made, an employer should consider the possibility of a phased introduction of changes over a longer period.
- Following changes, the Code states that it is good practice for an employer to review these with a view that it might find, due to a change in circumstances, that it can revert back to previous terms, or at least to consider any proposals which it had not been able to accommodate previously.
There will be no legal obligation to follow the Code, and a failure to observe it, does not, by itself render an employer liable to proceedings. However, it will be issued as a statutory code, which means there will be financial implications where an employer has unreasonably failed to take the Code into account, with the Tribunal having power to uplift compensation awarded in a successful claim for unfair dismissal for example, by up to 25%, in the same way it can if an employer does not follow the ACAS Code of Practice on Disciplinary and Grievance Procedures. Similarly, compensation can be reduced by up to 25% if an employee does not reasonably comply with the Code, although this scenario is less likely to apply in practice.
Larger employers may already be familiar with similar exercises when implementing redundancies. However, smaller employers may not have the knowledge or resources to follow the Code and there will inevitably be circumstances where an employer needs to make changes urgently and may not have the luxury of time to consult in the way envisaged by the Code.
Employers will need to factor in the potential 25% uplift when deciding whether to press ahead with changes. The Code is likely to be helpful to employees in slowing down the process and/or resisting the changes.
The Code will be brought into force when Parliamentary time allows.
If you would like more information about this code or any other employment law advice please do get in touch with one of the Employment Team.