Fire and rehire - UK government publishes draft Code of Practice

There are a host of reasons why an employer may want to change its employees’ contractual terms. If employees refuse to agree to changes, an employer may consider dismissing and re-engaging them on the new terms and conditions. In some cases, this may be the only way to implement the new terms and conditions effectively.

This practice – often referred to in the press as “fire and re-hire” – is not new but has become more controversial in recent years. Although the government resisted calls to make such dismissals automatically unfair, it committed to introducing a Code of Practice setting out the steps employers should follow if they are considering dismissing and re-engaging staff. The Department for Business, Energy & Industrial Strategy has now published a draft Code of Practice (the Code) for consultation.

Key points from the Code

The key message from the Code is that dismissal and re-engagement should be a last resort, not a negotiating tactic. An employer should engage in meaningful consultation with its workforce for as long as possible before any change is implemented and take all reasonable steps to explore alternatives to dismissal.

The Code will not apply to redundancy dismissals, although it will apply if an employer is dismissing employees and replacing them with new staff on different terms.

In broad terms, the Code suggests that employers should:

• Consult with relevant bodies, such as a recognised trade union or elected employee representatives, or with individual employees if appropriate;
• Consider allowing employees to elect representatives if it does not have an existing body with which to consult;
• Engage with employees in good faith and with a view to resolving disputes as openly and collaboratively as possible;
• Re-visit proposals in light of employee representations if employees are not prepared to agree to proposed contractual changes, to decide whether the changes are necessary or whether there are alternative ways of achieving the employer’s objectives;
• Share as much information with employees about the proposals as is reasonably possible as early in the process as possible, to help employees understand the need for changes and allow them to make counter proposals;
• Be honest and transparent about the fact that dismissal and re-engagement may follow if agreement cannot be reached, but not threaten dismissal as a negotiating tactic if the employer is not in fact considering this to achieve its objectives;
• Consult for as long as possible in the circumstances and re-assess the business case for the changes before deciding to dismiss and re-engage employees;
• Give as much notice of dismissal and re-engagement as possible, with contractual notice as a minimum; and
• Re-engage employees as soon as possible, to preserve their continuity of employment.

The Code recognises that employers may have overlapping information and consultation obligations, including in relation to collective bargaining or collective redundancies. Where relevant, employers must comply with those duties in addition to following the Code. Employers with a recognised trade union also need to be aware that making an offer direct to employees before exhausting any collective bargaining process may amount to an unlawful inducement.

Implications

The Code will not create any new legal obligations.

However, dismissals in this context may be unfair, even if an employer offers employees re-engagement on new terms. If an employer unreasonably fails to follow the Code when dismissing and re-engaging employees, tribunals will be able to increase any compensation awarded by up to 25%.

Next steps

The consultation on the Code closes on 18 April 2023. The government will bring the final version of the Code into force when parliamentary time allows.

Authored by Jo Broadbent and Stefan Martin.