Government to produce statutory code of practice on ‘fire and rehire’

On Tuesday 29 March the Labour Markets minister Paul Scully announced in Parliament that the government will be producing a new statutory code on the practice of ‘fire and rehire’. The code will also “clamp down on controversial tactics used by unscrupulous employers who fail to engage in meaningful consultations with employees”. The new statutory code of practice will detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms.

The practice of ‘fire and rehire’ refers to when an employer dismisses a worker and offers to rehire them on new, often less-favourable terms. Often the process is used when employers want to change the terms and conditions of either all or a group of their workers. This can take place in a variety of circumstances ranging from a wish to harmonise terms where an employer has acquired groups of employees on different contracts, to a desire to cut costs or reorganise business operations, to when a company is in financial distress and needs to cut costs to stay in business.

The code will include practical steps that employers should follow. Statutory codes of practice do not impose legal obligations, they help to explain legal obligations under the legislation to which they relate (in this case, the Employment Rights Act 1996 and the Trade Unions and Labour Relations (Consolidation) Act 1992. Tribunals and courts considering a claim within the remit of the code will be obliged to take into account any part of the code that appears relevant to the proceedings. If employers follow the guidance in the code, it may help to avoid an adverse decision by a tribunal or court in such proceedings.

The government has said that the courts will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply with the code where it applies (similar to the ACAS code on discipline and grievance).

The debate over fire and rehire has been a hot topic since early in the pandemic. In November 2021, ACAS published guidance for employers considering making changes to employment contracts, making clear that fire and rehire should be an option of last resort and that employers should first have made all reasonable attempts to reach agreement through full consultation. The government has declined to legislate in this area however; in a written answer in February, Paul Scully suggested the government has no plans to legislate against fire and rehire and in October 2021, the government blocked a Private Member’s Bill that attempted to curb fire and rehire. The recent P&O Ferries situation appears to have motivated the decision to introduce the proposed code of practice; however, although the full facts are not publicly available, it appears that the P&O Ferries’ situation was not in fact a case of fire and rehire as the majority of employees were reportedly not offered re-engagement.

At first glance, and without a draft of the proposed code to refer to, it is difficult to see what it will add to the existing law. Employers engaging in fire and rehire (or dismissal and reengagement as it is more formally known) already face the risk of unfair dismissal claims and claims for failure to inform and consult. There may even be criminal liability if the employer fails to inform the Secretary of State ahead of mass dismissals, although it does not appear that this obligation will be addressed by the code.

To avoid the unfair dismissal risk they must have a potentially fair reason for dismissal and act reasonably in treating that reason as a sufficient reason for dismissing the employee. In respect of consultation, the law already requires that employers carry out fair, transparent and meaningful consultations on proposed changes to employment terms where those changes affect 20 or more employees; if they fail to do so, employees can make a claim for a protective award.

It is not yet clear if or how the code will seek to put a ‘gloss’ on those established legal principles. The government has stated that fire and rehire should only ever be considered as an absolute last resort if changes to employment contracts are critical and voluntary agreement is not possible. If this is enshrined in the code it would go beyond the existing law to some extent.  The difficulty then will be how clearly it defines the circumstances in which the code applies.

We will have to wait for the detail to be published. If all that the code seeks to do is to explain the existing legal obligations, it may do little harm and some good in helping small employers and employees to understand their rights and obligations. If it seeks to go further, it may simply muddy the waters in an already complex area of law.