Legal development

The new fire and rehire code of practice: striking the right balance between protecting employees and retaining business flexibility?

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    The Government has recently issued its response to the consultation on the statutory Code of Practice on Dismissal and Re-engagement (the Code). (Please see the link to our previous briefing on the consultation here).

    Dismissal and re-engagement

    Dismissing and re-engaging (or as it more often referred to firing and rehiring) is the practice of terminating employees’ contracts and offering to re-engage them on amended terms and conditions.  It is generally used where the changes are detrimental to the employee and the employer is therefore unable to get the employee’s consent. 

    Overview of the Code

    The Code aims to provide practical guidance on avoiding, managing and resolving disputes between employers, employees and trade unions in such circumstances. It sets out how employers should behave when changing employees' terms and conditions including engaging in meaningful consultation, exploring alternatives, and not raising the prospect of dismissal unreasonably early or putting undue pressure on employees by threatening dismissal where this is not envisaged.

    Scope of the Code

    The Code sets out guidance where an employer:

    • decides it may want to amend employee terms and conditions; and
    • envisages that, if an employee does not agree to such amendments, it might opt for dismissal and re-engagement of that employee.

    The Code does not apply in a genuine redundancy situation, where relevant collective consultation obligations may be separately triggered.  However, where an employer is planning redundancy and dismissal and re-engagement in respect of the same employees, the Code will apply for as long as dismissal and re-engagement is an option.

    It applies regardless of the numbers of employees affected by the proposed changes and regardless of the employer's reasons for considering the changes.

    What does the Code say?

    The employer's information sharing and consultation obligations should be ongoing. Even where agreement is unlikely, an employer should continue to consult for as long as reasonably possible in good faith to reach an agreed outcome. Information should be shared as early is reasonably possible to facilitate meaningful consultation so employees understand the reason for the proposed changes, can ask questions and make counter-proposals.  An employer should consider what information can be provided such as the proposed changes; the business reasons and the proposed next steps. It is good practice for employers to provide information in writing.

    An employer must be clear if they expect to opt for dismissal and re-engagement. However, the prospect of dismissal should not be raised unreasonably early and the threat of dismissal should not be used as a negotiating tactic where they are not envisaging taking such action.

    An employer should contact Acas for advice before raising the prospect of dismissal and re-engagement.

    Where agreement has not been reached but an employer wants to implement the changes, they should re-examine their proposals taking into account feedback received.  The Code sets out a list of factors that should be considered including their objectives; the negative consequences of their action and any reasonable alternatives.  An employer should re-consider this analysis if there are any material changes.

    Where changes are agreed, it is good practice for the changes to be communicated in writing and feedback invited.  Dismissal and Re-engagement should be a last resort option.

    Consequences for employers

    Failing to follow the Code does not give rise to proceedings but it is admissible in for example, tribunal proceedings.  A tribunal may adjust compensation by up to 25% for certain successful employment claims to reflect unreasonable non-compliance with the Code.

    Next Steps

    The new draft Code now has to be approved by Parliament. A commencement order will bring the Code into effect and with the impending General Election we assume that this will be done in the coming months.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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