“Fire and Rehire” – a new statutory Code

We wrote earlier this month about the new Labour Government’s proposals in the King’s Speech to “end the scourges of ‘Fire and Rehire’ and ‘Fire and Replace’”. The details of those proposals remain to be seen, but in the meantime, there has already been some legal development on this matter as a result of actions taken by the last government.

In February 2024 the then government published a statutory Code of Practice on dismissal and re-engagement, and this came into force on 18 July 2024.

“Dismissal and re-engagement”, as it is called by employment lawyers, is a tool used by employers when they wish to make material changes to an employee’s (or employees’) terms and conditions of employment, and an affected employee does not agree to those changes. In this situation, it is open to the employer to terminate the employee’s contract and offer them new employment on the proposed updated terms. This course of action comes with the usual risks to the employer if a dismissed employee has the statutory protection against unfair dismissal, or if their dismissal is unlawfully discriminatory.

A particularly high-profile example of this practice was the 2020 dismissal and reengagement of thousands of senior cabin crew by British Airways when the airline wanted to cut pay by 80%. Another example was the dismissal and reengagement of 500 British Gas engineers in 2021 when the utility company wanted to introduce longer hours and weekend/bank holiday shifts without enhanced weekend/bank holiday pay. In both cases, many employees who had refused to accept a unilateral contractual change ultimately took the offer of new employment, but both employers were subject to high levels of public criticism.

The new Code is intended to ensure that dismissal and re-engagement is only used as a last resort and imposes obligations on employers to consider other alternatives first. These include the following:

1. Employers must consult with affected employees “for as long as reasonably possible in good faith, with a view to reaching an agreed outcome”, although there is no prescribed time period for such consultation.
2. Employers must not raise the prospect of dismissal unreasonably early and must not use the threat of dismissal as a negotiating tactic where dismissal is not in fact envisaged.
3. Employers should contact ACAS to seek their advice before raising the prospect of dismissal and re-engagement.
4. Once it is clear to an employer that the proposed contractual changes are not agreed, it must re-examine its proposals, taking into account any feedback from employees and/or their representatives. If there is a material change in circumstances, the employer should re-examine its proposals again.
5. If following all of the above, an employer has no other option but to dismiss and re-engage as a last resort, it must give as much notice of dismissal as is reasonably practicable, and must comply with the greater of the employee’s statutory or contractual notice period. Re-engagement should also take place as soon as is reasonably practicable.

The Code does not apply to dismissals that are purely because a role is redundant, rather than because of a desire to impose contractual changes.

As is the case for other statutory Codes, employees cannot bring a claim solely on the basis that the Code has been breached, but it must be taken into account by employment tribunals in relevant cases.

An unreasonable breach of the Code will give tribunals the power to uplift any compensation awarded to a claimant by up to 25% (as is already the case in respect of breaches of the ACAS Code on Grievance and Disciplinary Procedures). If an employee unreasonably fails to comply with the Code, any compensation to them may also be reduced by up to 25%.

No uplift or reduction will be applicable to awards for a failure to collectively consult with employees under the Trade Union and Labour Relations (Consolidation) Act 1992.

The new Government has criticised the new Code as not going far enough, but has opted to retain it pending any further changes in this area they will seek to make in the coming weeks and months. It is anticipated that the Code will be updated or replaced once any relevant legislation has been passed.