New Code of Practice published on fire and rehire

‘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 several 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 government consulted on the draft Code of Practice between January and April 2023. Following this consultation, the government has now published a revised version of the Code, which is shortened, simplified and less narrowly-focused on unionised environments but its key contents remain substantively the same.

We expect the Code to come into force in the summer of 2024.

What does the fire and rehire Code do?

Scope and legal status

The Code will apply in situations where employers:

• are contemplating making changes to their employees’ terms and conditions, and
• envisage 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.

It would apply in all such situations, irrespective of the number of employees affected or the employer’s reasons for wanting to change new terms and conditions.

Genuine redundancy situations (as defined by law) are expressly excluded from the scope of the Code.

As a statutory Code of Practice, the Code does not impose any new binding legal obligations on employers. However, the Code is admissible in evidence in legal proceedings and any relevant provision of the Code must be taken into account by courts or Employment Tribunals. In addition, awards for certain Tribunal claims can be increased or decreased 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 which already apply to employers in relation to the ‘fire and rehire’ exercises, such as to the obligation to carry out collective redundancy consultation if the numbers involved are enough to trigger that obligation.

What are the key provisions of the Code?

‘A last resort’

The Code repeatedly emphasises that employers seeking to change contractual terms and conditions should only use ‘fire and rehire’ as a “last resort”, having exhausted other options. In particular, the Code is clear that empty threats of dismissal should not be used as a “negotiating tactic”, where employers are not genuinely considering the use of ‘fire and rehire’ to achieve their aims.

Information and consultation

The Code underscores the importance of open and transparent information-sharing and consultation by employers who are proposing changes to their employees’ terms and conditions. The Code recommends that employers should engage with employees and/or their representatives “as early as reasonably possible”, share “as much information … as reasonably possible” and engage in consultation “for as long as reasonably possible”. However, the Code does not prescribe specific timescales, deadlines or content for information-sharing and consultation, noting that the particular requirements of any given case will depend on the specific circumstances and the nature of the proposed changes.

Where it becomes clear that employees and/or their representatives are not prepared to accept proposed changes, employers are required to carefully re-examine their plans in light of workforce feedback.

Need to contact Acas

Before employers raise the prospect of dismissal and re-engagement with their workforce, the Code requires them to contact Acas for advice. This is a novel requirement and it remains unclear what role Acas are expected to play in these circumstances.

Consider longer notice periods and practical support

The Code encourages employers to act responsibly where using ‘fire and rehire’.

Employers should give as much notice of termination “as reasonably practicable”. Unusually, the Code specifically recommends that employers should consider giving employees more than their contractual notice entitlements.

Similarly, employers should consider whether to provide practical support to affected employees, such as career coaching or counselling.

The Code also recommends that employers should seek feedback from the workforce once changes have been implemented and commit to reviewing the changes at a fixed point in the future.

Fire and rehire Code implications for employers

The Code emphasises the existing legal and reputational sensitivity of ‘fire and rehire’ but does not significantly change the law in this area. The Code offers warm words about effective industrial relations, but largely reflects existing best practice among large and sophisticated employers.

From a legal perspective, the revised Code does not provide 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’ dismissals. It therefore appears that the Code will do little to substantively alter the legal status of the practice. The one notable new requirement under the Code is for employers to contact Acas for advice before raising the prospect of ‘fire and rehire’ but, as noted above, it is unclear what, if any, practical impact this will have.

Looking forward to a likely General Election later this year, employers should note that the Labour Party remains committed to ‘outlawing’ the use of dismissal and re-engagement if it wins the election (but has provided little detail about how this would actually be implemented).

In our experience, given its legal, reputational and industrial relations risks, ‘fire and rehire’ is typically reserved for circumstances where distressed employers would otherwise be forced to make redundancies. Further restrictions on the practice may therefore have the unintended consequence of making job losses and layoffs more – not less – likely in future.