Dismissal and Re-engagement – Government consultation

Government consults on statutory Code of Practice on Dismissal and Re-engagement 

The Government has launched a Consultation on a Code of Practice that addresses the controversial practice of “Fire and Re-hire” to bring about changes to employees’ terms and conditions of employment. The proposal for a Code of Practice was first made following the public outcry when P&O Ferries dismissed around 800 employees without consulting them and replaced them with new employees engaged on less favourable terms. 

The purpose of the Code is to ensure that an employer takes all reasonable steps to explore alternatives to dismissal and engages in meaningful consultation in good faith, with an open mind, and does not use threats of dismissal to put undue pressure on employees to accept new terms. 

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

Legal status of the Code 

The Code itself imposes no legal obligations and a failure to follow it by an employer does not, in itself, render it liable to legal proceedings. 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. 

When will the Code apply? 

The Code will apply where an employer: 

  • wants to make changes to employees’ employment contracts; 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. 

It will apply regardless of the numbers of employees affected, or potentially affected by the proposals. 

Information and consultation 

The Code emphasises the importance of the employer providing information to, and consulting with, employees or their representative in the above circumstances. The consultation process should be an ongoing one and the Code focuses on the importance of consulting in good faith, with a view to managing conflict, and resolving disputes as far as possible. In essence, it should be a genuine two-way process with a view to reaching agreement and avoiding the need for dismissals. 

Reconsidering the need for changes 

The Code states once it is clear that employees are not prepared to accept proposed changes without further negotiations, meaning that the employer may have to impose new terms or dismiss and re-engage, the employer should “re-examine its business strategy and plans”, given the potentially serious consequences for the employees. Taking into account feedback received so far, it should carefully analyse why the changes are thought to be and it should continue to reassess its proposals as discussions and consultations progress. 

Providing information for employees 

The Code actively encourages the employer to share as much information regarding its proposals as is reasonably possible. This enables employees and their representatives to understand the need for the changes and to ask questions and make counterproposals. Information should be provided early in the process, as this promotes trust as well as enabling meaningful consultation. 

Multiple changes to terms and conditions 

The Code recommends that if multiple changes to terms and conditions are proposed, they should be implemented (where possible) over a period of time. It also suggests that the need for those changes should be kept under review so that the original terms might be re-introduced if the original reason for making changes ceases to be relevant. 

Dismissal and re-engagement 

The Code goes on to state that an employer can consider dismissal and re-engagement as a last resort (or engage new employees for the same roles on those new terms), if, despite conducting a thorough and open information and consultation process and fully exploring any alternative proposals, it decides it still needs to make the contractual changes. Before deciding to dismiss, the employer should reassess its analysis of why the changes are needed. It recommends that if dismissal is necessary, the employer should give as much notice of dismissal as possible to allow employees to consider whether or not they can accommodate the changes. 

The Code also recommends that even after new terms have taken effect, it is good practice for employers to continue to review the need for the changes and, if circumstances change, it might discuss a return to the previous terms. 

What about other legal obligations? 

The Code recognises that other legal obligations may apply where an employer is proposing to change terms and conditions of employment, including obligations to consult about collective redundancies and pension changes. The Code does not give guidance on how to comply with those obligations. 

What does this mean in practice? 

We are a long way from prohibiting this controversial practice and employers can still use “fire and re-hire” as a method of imposing contractual changes. However, the Code slows down the process and prevents employers from using it as a knee-jerk reaction if their employees are initially against the changes. Employees can hope for a much more meaningful consultation process and perhaps more negotiation around changes to terms to avoid dismissals.

This article was first published by our UK member firm Doyle Clayton on 27 January 2023. Contact its experts Alison Garrow, Partner and Claire Wilson, Senior Associate, if you need help.