The practice known as ‘fire and rehire’, where employers consult with the workforce about changes to contracts and if the proposed changes cannot be agreed, force them through, has been under the spotlight in the last few years. There have been several well publicised cases of companies misusing the practice by dismissing employees in order to enforce new terms and conditions of employment containing significantly reduced benefits or pay.

in January 2023 the government launched a consultation into a new draft statutory Code of Practice on Dismissal and Re-engagement. The consultation ended on 18 April and the finalised Code will be brought into force when Parliamentary time allows. 

The purpose of the Code

The draft Code aims to promote good industrial relations and outlines a prescriptive procedure for employers to follow when they need to negotiate or impose changes to employees’ terms and conditions, such as a substantial changes to working hours or pay. 

Emphasising and focusing on, collaboration and negotiation to reach an agreed solution, the draft Code states that employers should not use threats of dismissal to put undue pressure on employees to accept new terms.

What does the draft Code say?

As well as setting out a best-practice process for employers to follow, the draft Code:

• Sets out a step-by-step process that the employer should follow to explore alternatives to dismissal, and engage in meaningful consultation with employees and/or their representatives.
• Emphasises that employers should not use threats of dismissal as a negotiating tool and that unilateral changes to contracts are likely to harm industrial relations.
• Considers dismissal and re-engagement as a last resort and requires employers to provide as much notice as possible and consider the specific needs of employees.
• Recommends that if agreement cannot be reached over changes to terms and conditions, the employer actively re-examines its business strategy in light of the potentially serious consequences for employees.
• Recommends that if multiple changes to terms and conditions are sought, they should be implemented (where possible) over a period of time. It also recommends that if the reason for changing terms ceases to be relevant, original terms be reintroduced.

Whilst the draft Code itself imposes no legal obligations on employers, employment tribunals will be able to take any failure to adhere to the Code into account where relevant to the legal proceedings, and may adjust any compensation by up to 25% to reflect unreasonable non-compliance with the Code by both employers and employees. This is similar to the ACAS Code of Practice on disciplinary and grievance procedures and will operate in the same way. The consultation period ends on April 18, 2023, with the finalised Code being brought into force “when parliamentary time allows”.

Potential implications for employers

As drafted, the Code applies whether or not more than 20 employees are affected, so would apply widely, in all situations where an employer was consulting about changes to terms and conditions, not just if collective consultation would be required. The provisions of the draft Code make the consultation process for changing employment contracts longer and more onerous for employers. Although the government says that the code will “crack down on unscrupulous employers that use controversial dismissal tactics”, it will also have a significant impact on responsible employers who have a genuine business need to change terms and conditions of employment, and who have always consulted with employees and trade unions in a fair and transparent way when proposing new contracts.

Some issues arising from the draft are not yet clear, such as:

• the extent to which an employer might need to “re-examine its business strategy and plans” if contract changes cannot be agreed;
• for how long a period of time it would need to continue to assess “whether a change in circumstances might meant it can return to the previous terms”; or
• the extent to which it would need to agree longer notice periods to enable employees to e.g. make childcare arrangements, or find alternative work, and how much longer those notice periods would need to be (given that contracts are often changed under challenging business conditions and financial pressure, and additional paid notice would add to that pressure)
• whether it will replace existing ACAS guidance on the same topic, which was published in 2021.

It is to be hoped that the responses received to the consultation mean that the final draft of the Code contains more helpful detail.