In recent years, significant attention has been given to the practice of ‘fire and rehire’, including a number of high-profile cases reported in the media. The practice involves employers dismissing employees and re-engaging them on a new contract of employment with less favourable terms. This could include, for example, changes to salary, working hours, annual leave entitlement or the length of notice required by each party to terminate the contract. Whilst such changes may not be desirable, there may be economic pressure that would cause employers to consider making such changes.
Whilst the practice itself is permissible, it has drawn a lot of criticism and could lead to employees pursuing an Employment Tribunal claim for unfair dismissal if they do not wish to accept the new terms being offered to them. Employers should therefore ensure they act reasonably at all times.
This has led to the Government announcing in March 2022 that they would publish a statutory Code of Practice on Dismissal and Re-engagement. The draft Code was published in January 2023. Following a consultation period, the Government have now published an updated Code and their response to the consultation.
The Code sets out what is expected from employers when they are seeking to make changes to the terms and conditions of an individual’s employment. It aims to strike a balance between allowing employers to adapt to competing business needs and protecting the interests of employees. It acknowledges that there may be circumstances in which employers will need to consider making such changes, but that engaging in ‘fire and rehire’ should be seen as a ‘last resort’ for employers when wishing to implement changes.
The Code states that employers should take reasonable steps to avoid engaging in ‘fire and rehire’ and should explore alternatives before deciding to do so. This will include engaging in meaningful consultation with individual employees or trade unions, explaining the business need for any proposed changes to terms and conditions and seeking approval. Crucially, employers should not raise the prospect of dismissal prematurely or use dismissal as a threat to persuade employees to agree to a change where dismissal is not actually being contemplated.
In order to seek approval to a particular change that would be disadvantageous to the employee, and avoid engaging in ‘fire and rehire’, employers could consider whether they can implement a more favourable change alongside this, in order to improve the overall package being offered to the employee. For example, if an employer wishes to decrease an employee’s salary due to economic downturn, an employer may consider offering an employee an increased annual leave entitlement in order to seek their approval for this change.
Following the consultation process, some minor amendments were made to the draft Code. Some of the key amendments are as follows:
- - The Code now states that employers should contact ACAS before they notify employees that they may engage in the practice. Previously, ACAS could be notified at a later stage.
- - The Code now states that it is good practice for information to be provided in writing to employees throughout the process.
- - When implementing multiple changes, the Code previously said that employers should implement these on a phased basis. The Code now states that employers ‘might wish to consider’ implementing these on a phased basis.
Now that the consultation has concluded and the Code has been updated, the Code is expected to be approved by Parliament and come into force at some point later in the year. Whilst the Code will not be legally binding, Employment Tribunals will be able to give consideration to the Code and may increase an award of compensation by up to 25% if an employer is found to have unreasonably complied with the Code. For this reason, employers should carefully consider the Code. Following the Code will minimise the risk of an employee pursuing and succeeding in any claim for unfair dismissal that arises following an employer seeking to dismiss and re-engage an employee on less favourable terms. If uncertain, employers should seek advice on the process they should follow when seeking to implement changes to an employee’s terms. Do contact us if you require any assistance.
If you would like assistance with an employment issue, please contact any member of our Employment Team.
Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.