Code of Practice on “fire and re-hire”

The Code of Practice on Dismissal and Re-engagement (commonly known as “fire and re-hire”) formally came into effect on 18 July 2024.

Employers have used dismissal and re-engagement to implement changes to contracts of employment for many years. Some of these have proved controversial (eg sudden imposition of changes to a large number of employees) and some have been quite sensible and less controversial (eg an employer trying to implement a shift pattern change with which 99% of employees agree and they need to enforce the change for the 1%, otherwise the shift pattern change cannot work).

Up until now, there has not been a lot of guidance on how an employer is supposed to carry out such an exercise and employers have been reliant on generic concepts of “reasonableness” and “good faith”.

Primarily in order to stop exploitative use of dismissal and re-engagement, the previous government said that they would introduce a Code of Practice to clarify employers’ obligations. That Code of Practice came into force on 18 July.

The first important point to note is that this Code of Practice is only likely to be temporary. In its King’s Speech this month, the Labour Government confirmed that it would continue to uphold its pre-election promise to “reform the law to provide effective remedies and replace the previous Government’s inadequate statutory code”. At some point in the near future, this Code is therefore likely to be replaced.

For the time-being though:

What does the Code require?

The Code recognises that there may be some cases where an employer needs to make changes and, as a last resort, may need to implement such changes by way of dismissal and re-engagement. Its stated purpose is to ensure that employers take all reasonable steps to explore alternatives to dismissal and engage in meaningful consultation with a view to reaching an agreed outcome with employees and their representatives.

The Code sets out a broad framework for the information and consultation exercise that should be followed by an employer, most of which reflects current best practice. Importantly, it is clear that where employees or their representatives do not agree to proposals, the employer should re-examine its proposals and take into account the feedback received before proceeding further.  

What are the consequences of failing to follow the Code?

The Code does not give any employee or representative the right to bring a stand-alone claim for a failure to follow the Code.

However, if another type of claim is raised (eg unfair dismissal), any compensation awarded to an employee can be increased by up to 25% if the employer has unreasonably failed to follow the Code (or reduced by up to 25% where an employee unreasonably fails to follow the Code).

What are the challenges for employers?

One particular challenge presented by the Code is that, whilst on the one hand, the employer is encouraged to inform and consult with employees and representatives, on the other hand it is told that “raising a prospect of dismissal can be detrimental to attempts to reach an agreed outcome, so the employer should not do so unreasonably early”. There is already legislation in place which requires an employer to consult collectively where dismissals of 20 or more employees are “proposed”. It is sometimes difficult for the purposes of this legislation to determine exactly when dismissals move from being merely contemplated to being “proposed”. Employers might previously have erred on the side of caution and commenced consultation at an early stage to prevent any criticism that consultation did not start early enough. Employers now have to balance that against an express instruction in the Code not to start consultation about potential dismissals and re-engagement too early. So, determining when first to mention the possibility of dismissals and re-engagement to employees or representative will in many cases be a difficult decision.

Does the Code go far enough?

The new Government does not think so, but it remains to be seen how they will reform the Code. They could change the content of the Code, imposing more obligations on employers or limiting the number of circumstances in which dismissal and re-engagement can be used. They could also strengthen the remedies for failures to follow the Code. We will hopefully have clarity on this in the next few months.