New statutory guidance has been published about controversial “fire and rehire” practices, where an employer dismisses a worker to then rehire them on different terms — a tactic typically used to compel an employee to accept contractual changes or lose their job. According to the new guidance, firing and rehiring should very much be a last resort adopted transparently, in good faith, and following a thorough consultation process with the affected employees and/or their representatives.

Background

In March 2022, the government announced a new statutory Code of Practice on firing and rehiring (“Code”). The aim of the Code was to clamp down on employers who fail to consult fairly and transparently on proposed changes to employment terms.

The government’s press release on the Code made clear that the Code was being implemented in response to a company’s infamous dismissal of 800 employees without consultation. Those dismissals were not a fire and rehire situation per se (the second element of rehiring the workers was plainly missing), but the government considered that the case “laid bare the measures some deceitful employers are prepared to take to exploit and break the law” and highlighted a need “to tighten the screw on unscrupulous employers.”

The Code was originally published in January 2023 but, following some concerns raised about its length and complexity, has been revised and republished as of February 2024. The government has announced that the Code will come into force before the Parliamentary recess on July 23, 2024.

Legal status

The Code itself is not a legally binding instrument but an employment tribunal can have regard to its provisions in a case before the tribunal that relates to a fire and rehire situation. The tribunal can increase any award it makes by up to 25% if the employer has unreasonably failed to comply with the Code. Conversely, the tribunal is empowered to decrease any award by up to 25% where the employee has unreasonably failed to comply. However, given the purpose of the Code is to place expectations on employers, the situations in which a tribunal might reduce an award are likely to be limited. The one expectation set out in the Code that captures both employers and employees (and their representatives) is the recommendation that “parties” consult with each other openly and in good faith. Therefore, we expect that an award would likely only be reduced where an employee or their representative acts in bad faith or is unreasonably uncooperative during consultation.

What does the code say?

The Code does not ban fire and rehire practices. It contemplates that employers may adopt this practice — termed “dismissal and re-engagement” in the Code — but only as a last resort after:

• attempting to reach agreement with an employee or their representative on changes to their contract;
• taking all reasonable steps to explore alternatives to dismissal; and
• engaging in meaningful consultation with the employee or their representative with a view to reaching an agreed outcome.

The Code 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. However, the Code excludes redundancy situations from its scope.

We summarize below the key topics covered in the Code.

Information sharing and consultation

The Code recommends that employers provide affected employees or their representatives with as much information about the proposed changes as soon is reasonably possible. This may be information about who will be affected by the changes, the business reasons for the changes, anticipated timings, and alternative options that have been considered.

Employers should consult with all employees (or their representatives) who may be affected by the proposals for as long as reasonably possible with a view to reaching an agreed outcome. In consultation, an employer should be transparent about its objectives, the nature of its proposal, and should genuinely consider any reasonable alternatives that are put forward.

Raising the prospect of fire and rehire

Where an employer intends to opt for fire and rehire if an agreed outcome cannot be reached, the Code says that employers should be transparent about this. However, the importance of transparency needs to be balanced with the risk that raising the prospect of dismissal could stymie attempts to agree to an outcome. The Code is clear that employers should not use the threat of dismissal as a negotiating tactic to pressure employees in situations where the employer is not actually considering dismissal.

Interestingly, the Code recommends that employers contact Acas for advice before raising the prospect of fire and rehire with affected employees.

Firing and rehiring employees

Only after undertaking a thorough information-sharing and consultation process should an employer resort to fire and rehire.

The usual laws around the fairness of dismissal and termination notice periods will apply. In addition to complying with those obligations, the Code suggests that employers:

• Consider whether employees might benefit from extended notice periods to make arrangements related to the changes (e.g., childcare arrangements);
• Consider whether to offer practical support to affected employees, like relocation assistance or EAP; and
• Commit to reviewing the changes after a fixed period.

Re-engagement of the dismissed employees should happen as soon as reasonably practicable. To reduce the likelihood that employees become discontent with the changes, the Code recommends that employers invite feedback about the changes as the employees adapt to them and consider how to mitigate any negative impacts on staff.

General comments

While the Code pads out the good faith process that employers are expected to undertake before opting to fire and rehire, it stays silent on the substantive legality of these practices. The Code restates the legal elements for a fair dismissal but does not provide guidance as to how those elements might be met when an employer wishes to fire and rehire staff.

The key question that remains in this regard is what substantial reason for dismissal an employer can rely on in this situation. The obvious answer would be redundancy, but the Code makes clear that it will not apply where the only reason the employer envisages dismissing an employee is redundancy. Because the other reasons set out in the dismissal provisions of the Employment Rights Act 1996 do not seem relevant, that only leaves the nebulous category of “some other substantial reason.” But the Code gives no indication as to how a "fire and rehire" dismissal could fall within that category.

Despite leaving some important legal questions unanswered, the Code is a helpful procedural guide that rehashes concepts which will be familiar to UK employers — good faith, transparency and fairness. Whether the Code has longevity is yet to be seen, given the Labour Party’s commitments to ban fire and rehire practices altogether if it wins this year’s general election.