Consultation by the government on the Statutory Code of Practice on dismissal and re-engagement

Some businesses suffering financially have been tempted to restructure  by dismissing employees and subsequently replacing them with new employees on less favourable terms. The P&O Ferries case (where 800 employees were dismissed without being consulted and replaced with employees on less favourable terms) sparked huge media attraction.

As a result, the government is currently consulting on a code that addresses the controversial practice of ‘Fire and Re-hire’. The purpose of the Code is to ensure that employers act reasonably and consider alternatives to dismissal where possible. The Code is further aimed at preventing employers using threats of dismissal to put undue pressure on employees to accept new terms and instead encourage them to consult with employees.

The consultation process lasts for 12 weeks, with responses required by 18 April 2023.

Important points to note:

• Employers are not legally obligated to follow the code. However, employment tribunals will be required to take it into account when considering any claims brought by employees and when assessing compensation. The employment tribunal may adjust compensation by up to 25% where there has been an unreasonable failure to comply with the Code.
• The Code will apply where an employer wants to make changes to employees’ employment contracts (regardless of the number of employees affected) and envisages that, if the employees do not agree to those changes, it might dismiss them and either offer to re-employ them on those new terms or engage new staff to perform their roles on those new terms.
• The Code emphasises the importance of the employer providing information to, and consulting with, employees or their representative in the above circumstances. It further states, that employers should “re-examine its business strategy and plans” given the potentially serious consequences for the employees.
• The Code encourages employers to share as much information regarding its proposals as is reasonably possible to ensure there is transparency between the parties. This also enables employees / their representatives to understand the reason for the changes and raise appropriate questions or put forward counterproposals. Information should also be provided early in the process, as this helps promote trust and makes the consultation process more effective. Feedback should also be obtained from employees.
• The Code recommends that if multiple changes to terms are proposed, they should be implemented over a period of time, where possible.
• The Code states that employers can consider dismissal and re-engagement as a last resort (after fair and transparent consultation and after they have explored any alternative proposal). If the dismissal is unavoidable, the employer should provide the employee with sufficient notice of the dismissal to allow employees to consider whether they can accommodate the changes.
• The Code also recommends that even after new terms have been implemented, these should be kept under review and employers should consider discussing reinstatement of existing terms where possible.

To summarise, employers can still use ‘Fire and Re-hire’ as a method of imposing contractual changes to restructure their business. However the Code is intended to slow down the process and prevents employers from using it without considering alternative options. Not complying with the Code, could mean that employers run the risk of paying employees 25% more compensation in an unfair dismissal claim.