The Government has released statutory guidance on dismissal and re-engagement (also known as fire and re-hire) through a Code of Practice on 18 July 2024.
What is fire and re-hire?
The practice of fire and re-hire is when an employer dismisses an employee and then re-engages them on reduced or less favourable terms and conditions.
This practice is lawful in the UK and drew controversy during the Covid-19 pandemic when large companies were accused of using the fire and re-hire strategy to reduce workers’ pay, overtime and holiday benefits with impunity which generated a significant ‘levelling down’ of thousands of workers pay and working conditions.
The Government subsequently set out to draft a Code of Practice to provide practical guidance to employers looking to engage in fire and re-hire practices and ultimately to avoid, manage and resolve any conflicts and disputes arising out of the use fire and re-hire.
Who is the Code of Practice for?
The Code of Practice is a helpful tool for employers and employees and applies regardless of the number of employees affected, or potentially affected, by the employer’s proposals and regardless of the employer’s reasons for seeking changes to its employees’ terms and conditions.
The Code also applies to all of an employee’s contractual terms, whether those are express or implied and, if express, whether they have been agreed in writing or verbally.
What does the Code of Practice say?
Inform and consult
Where an employer is considering making changes to one or more of its employees’ contracts of employment or envisages that the employee may not agree to the changes, the employer should meaningfully inform and consult with the employees or their representatives for as long as reasonably possible in good faith, with a view to reaching an agreed outcome.
All parties should engage with each other openly and genuinely consider the points that are put forward and employers should be as clear as possible about its objectives and proposals whilst also genuinely consider any reasonable alternative proposals. In particular, the employer should consider what information could be provided about:
- what the proposed changes are, including what the proposed new or revised terms will look like;
- who will be affected by the proposed changes;
- the business reasons for the proposed changes;
- the anticipated timings for the introduction of the proposed changes and the reasons for those;
- any other options that have been considered; and
- the proposed next steps.
Re-examination
Once an employer has consulted with the employees or their representatives and there has been no agreement reached between the parties, the employer should re-examine its proposals and consider the feedback received as well as the negative consequences of imposing the proposed changes such as:
- risks to the employer’s reputation;
- damage to relationships with the workforce or representative trade unions;
- the potential for strikes or other industrial action;
- the risk of losing valued employees;
- the risk of facing legal claims, and the associated costs and time;
- whether the proposals could have a greater impact on some employees with protected characteristics under the Equality Act 2010; and
- whether there are any other reasonably alternative ways of achieving the objectives.
Fire and re-hire as a last resort
The Code makes clear that fire and re-hire should only be used as a last resort for employers if an agreed outcome cannot be reached. It should be noted that unlike collective redundancy consultations, there is no minimum time period for a fire and re-hire consultation so a ‘last resort’ could take a while before making the decision to fire and then re-engage workers. Employers are expected to contact Acas for advice before raising the prospect of dismissal and re-engagement.
Furthermore, the Code states that a threat of dismissal should not be used as a negotiating tactic to put undue pressure on employees in circumstances where the employer does not envisage it will require to dismiss any staff to reach its objectives.
Opting for dismissal and re-engagement
Once the employer has exhausted its obligations under the Code of Practice and uses fire and re-hire as a last resort, it must still comply with any applicable qualifying periods and have a fair reason for the dismissal and follow a fair dismissal procedure.
The employer should comply with any contractual or statutory notice provisions and consider whether employees might benefit from more time in order to make arrangements which might better enable them to accommodate the changes.
Finally, the employer should re-engage the employee as soon as reasonably practicable and must comply with the employees right to a statement of employment particulars.
What are the consequences of not following the Code of Practice?
A failure to follow the Code of Practice does not make an employer liable to Employment Tribunal proceedings.
However, the Code is admissible in evidence in proceedings before a Tribunal and where relevant to the proceedings, will be considered by the Tribunal Judge.
Where an employee brings an Employment Tribunal claim such as unfair dismissal against their employer, the Tribunal may increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the Code.
What about contract variations?
If employee’s agree to any variations in their contract (although if it is for less favourable terms this is unlikely to be the case) then employers can issue a new contract for the employee to sign or incorporate terms into the contract if the contract permits this.
Where the employee does not agree to vary the terms of their contract and the employer looks to unilaterally impose variations to the terms, this will result in the breach of the employee’s contract which could lead to the employee refusing to work, bringing legal claims and providing a negative effect on industrial relations.
Other factors to consider
To avoid the compensation uplift and to show that employer’s are fulfilling their obligations under the Code of Practice, employer’s should be able to demonstrate that they have explored every alternative avenue by looking for alternative options seriously and not just looking to achieve a means to an end.
Additionally, with the new Labour government in force who had previously stated to ‘end the scourge of fire and re-hire’ and to replace and strengthen the ‘inadequate’ Code drafted under the previous government, it should be noted that changes to the Code may follow in future.
The Labour party did amend its manifesto shortly prior to their landslide win to state it would not outlaw the fire and re-hire practice as it understands that it is important for businesses to be able to restructure to remain viable and preserve their workforce and that fire and re-hire may be used where there is genuinely no alternative for the business.
- Disclaimer
- This article is for general guidance only and should not be used for any other purpose. It does not constitute and should not be relied upon as legal advice.
- If you would like to discuss this article or any recruitment issue in more detail, please contact Simon Bloch of JMW Solicitors LLP either by email at bloch@jmw.co.uk or by telephone on 0161 838 2628..
