‘Fire and Rehire’ draft Code of Practice – what does this mean for employers?

The Government has recently published its draft Code of Practice on dismissal and re-engagement. This was promised following increasing concerns over the use of ‘fire and rehire’ tactics by employers in order to force through a change to employees’ contractual terms and conditions.

The Code will apply when an employer plans to change employees’ terms and, if any employees do not agree to the changes, it intends to dismiss them and offer to re-employ them on new terms, or engage new employees. It will apply to all employers, regardless of size and the numbers of employees affected.

Under the Code, employers will be expected to engage in meaningful consultation whilst taking all reasonable steps to explore alternatives to dismissal before reaching the decision to dismiss and re-engage on new terms. It is intended to apply irrespective of the employer’s reasons for the changes, but not in a genuine redundancy situation.

Some noteworthy points from the draft Code:

1. There are multiple references to consultation needing to be “genuine and open-minded”, “meaningful” and that it should continue for “as long as possible”. This subjective language could potentially lead to evidential issues and employers being penalised if, for example, they could have provided information sooner or where an employee considers that consultation did not last long enough.
2. The Code also makes reference to employers giving employees “as much notice as possible” of proposed changes. On this basis, if an employer thinks that they will need to make changes that could ultimately result in dismissal and re-engagement, it seems sensible to start the process as soon as possible.
3. It is likely that employers are going to struggle to find a balance between being “honest and transparent about the fact that it is prepared….to dismiss employees…” whilst remembering that “threats of dismissal” should not be used as a tactic where no dismissal is contemplated. It is unlikely that an employee would agree to a detrimental change where there are no apparent consequences for refusing. However, as currently drafted it is hard to see in what circumstances saying, at the outset, that dismissals will be considered would not potentially be construed as a threat or undue pressure.
4. The Code will apply in addition to any existing legal obligations including, the obligation to carry out collective consultation under the Trade Union and Labour Relations (Consolidation) Act 1992 for proposing to dismiss 20 or more employees to enforce a contractual change.

It is unlikely that the steps set out in the Code will come as a surprise to employers, many of whom would in any event have carried out some form of consultation process if they were seeking to vary employees’ terms and conditions. However, this process will now need to be very clearly and well-documented so that employers can demonstrate compliance with the Code should it be challenged.

Whilst a failure to follow the Code will not give rise to any standalone claim, it will be admissible in evidence, and any relevant provision of the Code must be taken into account by the tribunal. For certain claims, a tribunal will be able to increase any award of compensation by up to 25% if the employer has unreasonably failed to comply with the Code, which could represent a significant increased cost if a large number of employees are affected. It will also be able to decrease an award by 25% if an employee has failed to comply although, as the majority of the obligations fall on the employer, this is likely to be rare in practice.

Consultation on the draft Code closed on 18 April 2023 and the responses will now be analysed.