Dismissal and re-engagement

There are many reasons why an employer may wish to change the terms of the employment contract. Where the change is unfavourable, especially if it involves changes to pay or benefits, the employee(s) may not give their consent to the proposed change. If negotiation and consultation does not resolve the issue, as a last resort the employer can terminate the existing contract and offer a new one (a practice commonly known as ‘fire and rehire’). 

However, following widespread public controversy regarding the practice of fire and rehire in recent years, the government last year launched a public consultation on a new draft statutory code of practice on dismissal and re-engagement (see our report on the consultation here). 

The Government has recently published its response to the public consultation and placed an updated draft Code before Parliament for approval. In summary, the Code:

Purpose: 

• Provides practical guidance to employers and employees (and/or their representatives) where an employer is considering making changes to one or more of its employees’ contracts of employment, and envisages that, if agreement cannot be reached, it might opt for dismissal and re-engagement
   
• Seeks to ensure that the employer: 
   
  • takes all reasonable steps to explore alternatives to dismissal and engages in meaningful consultation with a view to reaching an agreed outcome with employees and/or their representatives; and
     
  • contacts Acas before it raises the prospect of dismissal and re-engagement, and does not raise this prospect unreasonably early, as a negotiating tactic, or to put undue pressure on employees by threatening dismissal where this is not envisaged

Scope: 

• Applies regardless of the:
  • number of employees affected (or potentially affected); and 
  • employer’s reasons for seeking changes to employment terms and conditions

Information and consultation obligations:

• Requires an ongoing process of information-sharing and consultation between employer and employees – with the employer being required to: 
   
  • share as much information regarding the proposals as reasonably possible, as early as reasonably possible, with the employees (or their representatives) to enable them to understand the reasons for the proposed changes, and to be able to ask questions and make counter-proposals; and
     
  • consult openly and in good faith, for as long as reasonably possible, with genuine consideration of the points put forward from the employees (or their representatives) including any reasonable alternative proposals, with a view to reaching an agreed outcome
     
• Confirms that this information sharing and consultation process may, depending on the circumstances, be with a recognised trade union, any pre-existing body of employee representatives, employee representatives specifically elected for this purpose, or the employees individually
   
• Requires the employer to comply with its other legal consultation obligations (eg collective redundancy consultation, consultation in relation to TUPE transfers, consultation re health and safety implications and/or changes to pension schemes, compliance with collective bargaining or information and consultation agreements)
   
• Suggests that the types of information which should be shared (preferably in writing) include:
   
  • what the proposed changes are (including the proposed new and/or revised terms);
     
  • who will be affected by the proposed changes;
     
  • the business reasons for the proposed changes;
     
  • the anticipated timings for the introduction of the proposed changes and the reasons for those;
     
  • any other options that have been considered; and
     
  • the proposed next steps
     
• Recommends that, if the employees (or their representatives) have questions, the employer should consider whether this information can be provided and if it decides it cannot share it (eg because it is confidential) that is explains its rationale

Reconsideration:

• Suggests the employer should re-examine its proposals if the employees and/or their representatives do not agree to some or all the proposed changes, considering: 
   
  • any feedback it has received so far;
     
  • the objectives which it is seeking to achieve;
     
  • the negative consequences of imposing the proposed changes (including reputational risk, damage to workforce relationships, the risk of industrial action and/or strikes, the risk of losing valued employees, the risk of legal claims, and any equality/discrimination impacts);
     
  • whether there are any reasonable alternative ways of achieving the objectives

Communicating agreed changes:

• Where changes are agreed, suggests that the employer:
   
  • should communicate the changes in writing, setting out clearly when the changes will come into effect (giving as much notice as reasonably practicable) – this written notice should be within one month of the new terms taking effect if the changes are to particulars covered by a written statement of the main employment terms;
     
  • should, as a matter of best practice, invite feedback about the changes as employees adapt to them, and consider what might be done to mitigate any negative impacts on employees

Unilaterally imposing new terms:

• Where it has not been possible to reach an agreed outcome, and the employer decides to try to impose those terms anyway, recommends that it should first consider whether the contract gives them the power to do so. If not, it should consider the damaging effects unilaterally imposing new terms will have on industrial relations and the legal risks associated with proceeding

Dismissal and re-engagement:

• If, as a last resort, having failed to reach agreement with the employees (or their representatives), the employer decides to proceed to dismiss and re-engage then the employer:
   
  • must have a potentially fair reason to dismiss, act reasonably in treating this as a sufficient reason for dismissal and follow a fair dismissal procedure;
     
  • should give employees as much notice as reasonably practicable (and at least the minimum statutory or contractual notice);
     
  • should consider whether employees might benefit from more time to make arrangements which might better enable them to accommodate the changes (e.g. adapt their childcare arrangements, plan new journeys to work);
     
  • should consider whether there is any practical support it might offer to employees, such as relocation assistance, career coaching or counselling for emotional support;
     
  • should consider whether to implement the changes in a phased way;
     
  • might invite feedback on the changes and commit to reviewing the changes later; and
     
  • must re-engage the employees as soon as reasonably practicable and confirm the new terms in writing

Employment tribunals will be able to take failure to follow the Code into account in relevant proceedings. In specified employment claims (including but not limited to unlawful deduction from wages, detriment, unfair dismissal, and discrimination claims), compensation can be uplifted or reduced by up to 25% if the Code has not been followed.

The Code is expected to come into force later this year (on a date yet to be confirmed).