For most organisations, there will, for whatever reason, come a time when they want (or need) to change employees’ terms and conditions. Ideally, that’s done through discussion with employees and with their consent.
However, if an employer can’t get that consent one option open to them is to dismiss the employee and offer re-engagement on the revised terms – so-called, ‘firing and re-hiring’. In our experience this controversial practice is usually used in limited circumstances where employers in a difficult situation would otherwise be forced to make redundancies.
The previous Government put in place a statutory Code of Practice on Dismissal and Re-engagement (the Code). The Code’s purpose is to make sure that employers take all reasonable steps in exploring alternatives to dismissal and engage in meaningful consultation with a view to reaching an agreed outcome with employees. It also seeks to ensure that employers do not raise the prospect of dismissal unreasonably early or put undue pressure on employees by threatening dismissal unnecessarily. The Code came into force from 18 July 2024.
What is the Code?
The Code was drafted after consideration of a report completed by ACAS, which can be found here. It is a statutory code, which can result in an uplift or decrease in compensation depending on whether the Code was followed.
The Code outlines a step-by-step process that an employer should follow to consider alternatives to dismissal and engage in meaningful consultation with trade unions, employee representatives or directly with the affected employees to find an agreed solution.
The Code will apply regardless of whether the roles are filled by existing employees or new hires.
Dismissing employees for refusing to agree to new contractual terms
You can read our article on how to change employment contracts to reduce pay and hours here. In brief, if an employer wishes to change an employee’s terms and conditions of employment, we recommend that they should seek the employee’s consent and consult with them. It is only after those steps have been taken that it is potentially safe to move to dismissal with the offer of re-engagement.
When considering the fairness of a dismissal, a tribunal will look at the context of the proposed change. No one relevant factor will be looked at to the exclusion of all others. This will include has the employer tried to obtain voluntary agreement to proposed changes to terms and conditions of employment. Note that failure to make an offer of re-engagement would amount to a breach of the Code. Further, if an employee unreasonably refuses that offer of re-engagement, the employer can argue that the employee has failed to mitigate their loss.
Fair consultation – a key component
The Code provides some general considerations for information sharing and consultation. It is imperative that an employer informs and consults with all employees who might be affected by the proposed changes, whether directly or through their representatives. Employers also need to be mindful of any affected employees who are absent, such as those on sick leave or maternity, paternity or adoption leave.
For a meaningful consultation to take place, all involved should engage with each other openly and in good faith. An employers should be as clear as possible about its objectives and the nature of its proposals and give genuine consideration to any reasonable alternative proposals with a view to reaching an agreed outcome.
A lengthier consultation period will facilitate a more thorough discussion of the proposals and any alternatives, therefore increasing the chances of an agreed outcome being reached.
If an agreed outcome cannot be reached, it is important employers are clear about dismissal and re-engagement being a possibility. However, raising such a prospect should not be done unreasonably early as this could make the employee act under duress.
The Code requires employers to contact ACAS before fire and re-hire is raised with the workforce to seek advice.
Our article on changing terms and conditions provides further detail on following the Code.
What makes a dismissal ‘fair’?
Under the current law if an employee is dismissed and offered re engagement on new terms then their potential claim will be for unfair dismissal.
Subject to any applicable qualifying periods, in order for a dismissal to be fair, employers must:
- Have a potentially fair reason for dismissal;
- Have acted reasonably in the circumstances in treating that reason as a sufficient reason for dismissal; and
- Have followed a fair dismissal procedure (following the Code will be vital to establishing this).
All cases are fact specific but below are some of the key points that tribunals will take into consideration when determining whether or not dismissal was fair in the circumstances:
- The employer’s motives for introducing the changes.
- The employees’ reasons for rejecting the changes.
- Whether the employees were given reasonable warning of the proposed changes.
- Whether the changes and full effect of those changes have been sufficiently and clearly explained to the employees.
- Whether the employer has undertaken an assessment of the impact of the changes on employees and whether it has considered alternatives to any changes.
- Whether the employer has attempted to obtain the employees’ voluntary agreement to any of the changes.
- Whether a reasonable and genuine consultation process with the affected employees has taken place. This will include listening to their reasons for rejecting the changes, responding reasonably to objections and making concessions, where reasonable to do so.
- Whether a majority of the employees affected have accepted the changes.
- Whether any recognised trade union recommended or objected to the changes.
What happens if the Code is not followed?
Although failure to follow the Code will not give rise to any standalone claims, if an employee brings an employment tribunal claim arising from a hire and re-hire situation, the tribunal can:
- Increase any award it makes by up to 25% if the employer has unreasonably failed to comply with the Code.
- Decrease any award by up to 25%, where the employee has unreasonably failed to comply with the Code.
The uplift and decrease in compensation only apply to certain claims, for example unfair dismissal. It does not currently apply to protected awards for failure to collectively consult, as proposal to extend the uplift to these claims did not get through parliament before it was dissolved.
The political landscape
Dismissal and re-engagement have been under close scrutiny in recent years and a number of high-profile politicians have raised concerns about the practice and when it was debated by MPs on 27 April 2021 the Business Minister said ‘fire and rehire’ “should only ever be used as an option of last resort”. Several high-profile organisations have also contributed to the debate, including the TUC who have called for it to be banned.
When in opposition Labour contended that the Code did not go far enough and now they are in Government they have pledged to strengthen the Code. In a statement on 18 July 2024 Jonathan Reynolds (Secretary of State for Business and Trade) said “We will be bringing forward legislation within our first 100-days of Government to put an end to these practices that have no place in a modern labour market.”.
We are yet to see the proposals but understand that they will include compensation for individuals who are subject to “fire and re-hire”. Some options which might be open to Labour to strengthen employee rights in this area would be to grant a new type of claim, decreeing that dismissal for failure to agree a change in terms will be automatically unfair or perhaps allowing it to be a fair dismissal but requiring employers to pay a statutory award similar to redundancy dismissals.
Whatever the future holds the Code is in force for now and employers need to follow it or risk uplifts to compensation and challenges that any dismissals are unfair.
What should you do next?
If your business is facing the need to make changes to employees’ contracts then please do get in touch, as each case is fact specific and seeking advice at an early stage can make all the difference.