Government announces plans for a statutory code of practice on 'fire and rehire'

The government has announced plans to introduce a new Statutory Code of Practice on dismissal and re-engagement ('fire and rehire'). 

What are the options when changing terms and conditions of employment?

If an employer wants to make a change to terms and conditions of employment, which is not authorised under the contract, the options are to:

• Seek consent (either directly or through collective bargaining);
• Unilaterally impose the change; or
• Terminate employment and immediately offer re-engagement on new terms and conditions ('fire and rehire').

For more information on the process for and risks associated with these options read our earlier blog: Changing employees' terms and conditions: key considerations for employers.

When is 'fire and rehire' lawful?

If used appropriately, dismissal and re-engagement can be an effective way of implementing changes to terms and conditions.  However, there is technically a dismissal – even if the employee accepts immediate re-engagement - and employees with at least two years' service can claim unfair dismissal. Whether such a dismissal is fair depends, amongst other things, on whether there is a good business reason for the change and what procedure is followed.

When assessing fairness, and whether an employer has acted reasonably, relevant factors include:

• the motives for introducing, and the reasons for rejecting, the change
• whether the employee was given reasonable notice / a full explanation of the change
• if alternatives were considered
• whether there was an attempt to obtain the employee’s voluntary agreement to the change
• whether a reasonable and genuine consultation process took place
• whether most employees accepted the change
• whether any recognised trade union recommended or objected to the change

There is no minimum period of consultation unless 20 or more employees are dismissed at one establishment within 90 days, in which case the collective consultation obligations and the duty to notify the Secretary of State will be triggered. 

New statutory code of practice on 'fire and rehire'

Following criticism of the reported increased use of 'fire and rehire' during the pandemic, ACAS published guidance in November 2021. The guidance makes it clear that employers should fully consult their workforce and make every effort to reach agreement on contract changes, noting that dismissal and re-engagement should only be considered as a last resort. The ACAS guidance has no statutory force.

The government has confirmed that it has no plans to legislate against dismissal and re-engagement, having blocked a Private Member's Bill aimed at curbing the practice. However, on 29 March 2022 it announced that a new Statutory Code of Practice is to be published on 'fire and rehire'. The Code will set out how businesses must hold fair, transparent and meaningful consultation on proposed changes to employment terms, and will include practical steps for employers to follow.

Statutory codes of practice do not impose legal obligations. However, tribunals and courts will be required to take the Code into account when considering relevant cases, including unfair dismissal. If employers follow the guidance in the Code, it may help to avoid an adverse decision. If they unreasonably fail to do so, it may result in an uplift of up to 25% of an employee's compensation where the Code applies.

The Code has yet to be published. At the moment it's unclear whether it will make any significant changes to the existing accepted standards of practice. Employers engaging in 'fire and rehire' already face the risk of unfair dismissal claims and claims for failure to inform and consult. The introduction of the Code will, however, undoubtedly increase the focus on large scale dismissal and re-engagement exercises.

More information

For more information on the options when seeking to vary employees' terms and conditions, please get in touch with a member of the employment and immigration team.

Workbox by Brodies, our award-winning HR and employment law site, has detailed resources on implementing new terms and conditions, including template letters and guidance on fair procedures.