Draft Code of Practice published on restricting “fire and rehire”

Background

“Fire and rehire” is a shorthand for the practice of changing employment terms and conditions by way of dismissal and re-engagement, typically in situations where it is impossible to obtain employee or trade union consent to the changes. It has attracted heightened controversy in recent years, as a number of prominent employers used the practice during the Covid-19 pandemic. Following the scandal over the firing of 800 workers by P&O Ferries in March 2022 (which strictly did not involve a ”fire and rehire” exercise), the government announced plans to introduce a new statutory Code of Practice to encourage employers to act fairly and reasonably in negotiations over changes to terms and conditions.

The draft Code of Practice was published by the government on 24 January 2023, as part of a public consultation which runs until 18 April 2023. It follows the publication of Acas guidance for employers in November 2021 (which we wrote about here).

What is the government proposing?

Scope and legal status

The Code is intended to apply in situations where an employer is contemplating making changes to their employees’ terms and conditions, and envisages that if the employees do not agree to the changes, it may dismiss them and either re-engage them on the new terms or engage new workers on the new terms. The Code would apply irrespective of the number of employees affected or the employer’s reasons for seeking to implement new terms and conditions, but would not apply to genuine redundancy situations (as defined in section 139(1) of the Employment Rights Act 1996).

The Code does not impose any binding legal obligations on employers but would carry more legal weight than the current Acas guidance because employment tribunals would be required to take the Code’s provisions into account when deciding relevant claims, and could increase or decrease certain tribunal awards by up to 25% where employers or employees have unreasonably failed to comply with the Code.

The Code does not remove the existing legal obligations that already apply to employers in relation to “fire and rehire” exercises, such as the obligation to carry out collective redundancy consultation under the Trade Union and Labour Relations (Consolidation) Act 1992.

Information and consultation

The value of effective information-sharing and consultation is a central theme of the Code. The Code recommends that employers should engage with employees and their representatives early and on an open and collaborative basis when contemplating any contractual changes. Where it becomes clear that employees are not prepared to accept proposed changes without further negotiations, employers should carefully re-examine their plans in light of workforce feedback.

The Code emphasises that employers should provide “as much information regarding the proposals as is reasonably possible” to employees and their representatives to facilitate meaningful consultation and reach agreement. The Code notes that the information to be provided will depend on each employer’s specific circumstances, but envisages that this will typically include information on its rationale for the proposed changes, anticipated timings, the benefits of any changes and the impact on the employer if the changes are not implemented.

The Code warns employers against adopting a formulaic approach to consultation, which should be thorough, open and conducted in good faith with a view to reaching agreement. Employers should listen carefully to objections and give genuine consideration to any alternative proposals which are put forward. The Code recognises that consultation processes will vary in each case, and does not prescribe minimum time periods or detailed procedures which must be adopted. However, employers may be concerned by the provision stating that they “should continue to consult and negotiate for as long as possible in good faith in order to try to seek a resolution”, which could give trade unions significant leverage to frustrate business decision-making.

The Code also warns employers against using threats of dismissal as an intimidatory tactic during difficult negotiations. While employers should be transparent that failure to agree changes may result in dismissals, the Code robustly states that “a threat of dismissal should never be used only as a negotiating tactic in circumstances where the employer is not, in fact, contemplating dismissal as a means of achieving its objectives.”

Implementing changes

The Code emphasises that employers should only use “fire and rehire” as “a last resort”, following thorough and open information and consultation processes. Before reaching this conclusion, employers should take time to revisit their plans and to re-consider whether dismissal and re-engagement would be “truly necessary”, if there are any alternative options which could achieve the same objectives, and if their proposals could disproportionately impact employees with particular protected characteristics.

The Code makes it clear that employers should implement any “fire and re-hire” exercise as responsibly as possible, including considering how best to support their workforce through what may be a difficult process. For example, the Code recommends that employers should consider whether any particular employees might need longer notice in order to make arrangements to accommodate the changes or whether multiple contractual changes could be implemented on a phased basis. Going forward, employers should keep the impact of imposed changes under review and maintain open and collaborative discussions with employee representatives.

Implications for employers

While the Code offers warm words about industrial relations best practice, it would not prohibit the use of dismissal and re-engagement (in contrast to the Labour Party’s pledge to outlaw the practice in its Employment Rights green paper). From a legal perspective, it is perhaps most notable that the Code provides no guidance on what circumstances will constitute “some other substantial reason” justifying dismissals in the context of negotiations over contractual changes, which provides the basis for lawful “fire and rehire” terminations. It therefore appears that the publication of the Code will do little to substantively alter the legal status of the practice.

Much of the Code reflects existing best practice among unionised employers, for whom collaborative information-sharing and meaningful consultation is an established pillar of long-term partnerships with their recognised unions. However, the guidance that employers “should continue to consult and negotiate for as long as possible in good faith in order to try to seek a resolution” is likely to be unhelpful as it threatens to give unions an implicit veto over business strategy.

The Code’s emphasis that fire and rehire should be used only “as a last resort” underscores the existing sensitivity over the practice. Its publication will likely further increase the scrutiny – and potential reputational and industrial relations risks – to which fire and rehire exercises are subject.

The Code is still in draft and open for consultation until 18 April 2023. The government has not set a definitive date for bringing the final version into force, but we would expect this to be some time later this year.