Government publishes updated statutory code of practice on “Fire and Rehire”

The controversial practice of “fire and rehire” has come into the spotlight in recent years with a number of high-profile cases making the news including the P&O sackings in March 2022. In January 2023, the government published a draft Code of Practice for public consultation aimed at tackling the issue.

The new Code of Practice, published in February 2024, is the culmination of this consultation process. Key points to note are:

• Fire and rehire should only be used as a last resort.
• The original draft Code required employers to contact Acas if they were unable to reach agreement with employees about fire and re-hire. This requirement has now been strengthened and the Code requires employers to contact Acas at an early stage before they raise fire and rehire with the workforce.
• The Code states that it is good practice for employers to give information in writing rather than verbally.
• The Code does not apply in redundancy situations. It will apply, however, where both redundancy and fire and rehire are being considered as options. The Code will apply for as long as fire and rehire remains on the table.
• Employers must consult under the Code “for as long as reasonably possible” but there is no minimum or fixed time period of consultation.
• Employers must not use threats of dismissal to pressurise employees into signing new terms and conditions.
• Employers should explore alternatives to fire and rehire. They must have meaningful discussions with employees and trade unions focused on reaching agreement.
• Employers should not threaten dismissal unreasonably early or if it is not actually envisaged.

What are the penalties for failure to follow the Code?

Employees cannot make a stand-alone claim just for an employer’s failure to follow the Code. However, if they bring a relevant Employment Tribunal claim arising from a hire and rehire situation (such as unfair dismissal or discrimination), then the Employment Tribunal will have the power to order an uplift to the employee’s compensation of up to 25% if the employer has unreasonably failed to follow the Code.

Does the Code affect existing legal obligations in collective redundancy situations?

No. The Code does not remove or amend the existing legal obligations that already apply to employers in relation to “fire and rehire” exercises. This is primarily the obligation to follow the collective redundancy consultation rules imposed by the Trade Union and Labour Relations (Consolidation) Act 1992.

Does the Code of Practice apply where only a few employees are affected?

The Code of Practice will apply regardless of the number of employees potentially affected by the proposals.

The Code will not apply where an employer is only envisaging making employees redundant. However, if the employer is considering both redundancy and/or firing and rehiring as potential options then the Code will apply.

How have Trade Unions reacted to the Code of Practice?

The general reaction from Trade Unions is that the Code of Practice lacks teeth because it does not introduce any new laws to prevent the practice of fire and rehire.

Paul Nowak, general secretary of the TUC, said: “This Code lacks bite and is not going to deter bad employers from treating staff like disposable labour. We need far more robust legislation to protect people at work. One in 10 were threatened with fire and rehire during the pandemic – tinkering around the edges is not going to cut it.”

Unite general secretary, Sharon Graham said: “Fire and rehire is an abhorrent practice used by the worst of the worst to attack their own workers. It should obviously be against the law, with serious penalties attached. The idea that a Code of Conduct is going to stop employers like P&O from doing this is just a bad joke.”

Is fire and rehire against the law?

There is no actual law against dismissal and re-engagement and it is technically possible for an employer to achieve a fair dismissal using this practice. This would require a solid business reason, a reasonable and fair consultation process and all the technical and procedural boxes would need to be ticked.

Other than the risk of being found to have breached the Code of Practice (with a potential 25% compensation uplift), what are the risks of fire and rehire?

Unfair dismissal claims are a key risk. If the employee has 2 years’ service, they can bring an unfair dismissal claim regardless of whether they have accepted the offer of the new contract. If the employee is successful in this claim, the Tribunal could order that the employer reinstates them on their original terms.

Other risks include reputational damage and damage to industrial relations and staff morale.

What practical steps should employers take if they need to vary terms and conditions?

Consider whether the terms of the employment contract permit you to make minor variations. If so, consider whether the change is likely to be considered significant. Exercise caution when relying on variation clauses as they don’t give “carte blanche” to impose changes and Employment Tribunals expect employers to act reasonably when relying on them.

Employers should always consult with employees in a transparent manner about the business reasons for any proposed changes to terms and conditions and if it is possible to gain agreement to the changes then this is ideal. Be aware that employers have a legal obligation to collectively consult with employee representatives if they propose to potentially dismiss more than 20 employees within a 90-day period.

If agreement with employees cannot be reached, it is unlikely to be safe to simply impose the change. The employer might want to consider fire and rehire – i.e. dismissal coupled with an offer of re-engagement on the new terms. The new Code of Practice should be followed once it takes effect (likely to be this Summer). Consider taking professional advice as fire and rehire can be a high-risk option and easy to get wrong.

Our comment

Fire and rehire is never a magic bullet. The new Code does not alter the basic existing legal framework governing this area but it does add a new layer for consideration. Employers considering fire and rehire will need to balance the legal, reputational and industrial relations implications against the potential gains. The key take-away from the new Code of Practice is that firing and rehiring should only be used as a last resort.

Finally, the Labour Party pledged in its Employment Rights green paper to outlaw the practice of fire and rehire altogether so there may be further changes in this area if it wins power at the next election.

Explore more updates in this issue of Employment Matters below.

Find out more about our Employment & Immigration team, and how they can support you here.