Fire and Rehire.

The new statutory Code of practice on dismissal and re-engagement, also known as fire and rehire, came into force on 18 July 2024.

The Code does not change the law in this area. Its aim is to set standards for employers to hold fair, transparent and meaningful consultations on proposed changes to employment contracts, where the employer is considering dismissing staff and offering them re-engagement on new terms. The Code sets out a step-by-step process for employers to follow to explore alternatives to dismissal, and to engage in meaningful consultation with trade unions, employee representatives or directly with the affected employees to reach an agreement.

The Code will apply regardless of the number of employees affected or the business reasons for the proposed changes to terms and conditions. The Code clarifies that it will not apply where an employer is only envisaging making employees redundant, however it will apply where both redundancy and dismissal and re-engagement in respect of the same employees is contemplated.

Types of information

The Code provides that employers should share as much information regarding their proposals as reasonably possible with a view to enabling employees and/or their representatives to understand their reasons and to be able to ask questions and make counter-proposals. It also acknowledges, though, that the information provided will depend on the circumstances – providing as an example that if a business is suffering a financial crisis necessitating a shorter consultation process, it may not be able to provide as much information as a business in more settled times.

The Code states that, in particular, employers should consider what information could be provided to employees about the following:

• What the proposed changes are (including what the proposed new and/or revised terms will look like).
• 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.
• The proposed next steps.

If an employee asks for other information and the employer decides that the information cannot be provided, for example, where it believes it is commercially sensitive or confidential, the employer should explain its reasons for any refusal.

Consultation

Consultation should be meaningful, and in good faith. The employer should be as clear as possible about its objectives and the nature of its proposals.

Consultation should last for as long as reasonably possible, with a view to reaching an agreed outcome.

Re-examination of business plans

If employees are unwilling to accept the contractual changes, the employer should re-examine its plans, and take into account the feedback it has received from employees or their representatives. Factors which an employer should consider include (but are not limited to):

• The objectives which it is seeking to achieve.
• The negative consequences of imposing the proposed changes. These could include:
  • risks to the employer's reputation;
  • damage to relationships with its workforce or representative trade unions;
  • the potential for strikes or other industrial action;
  • the risk of losing valued employees; and
  • the risk of facing legal claims, and the associated costs and management time.
• Whether its proposals could have greater impact on some employees than others.
• Whether there are any reasonable alternative ways of achieving the employer's objective.

ACAS

The Code encourages employers to contact ACAS before raising the prospect of dismissal and re-engagement, but also clarifies that they can be contacted whenever the Code applies.

If changes are agreed

The Code states that if changes are agreed, it is good practice for employers to communicate them in writing, setting out clearly when the changes will come into effect, giving as much notice as reasonably practicable. It also acknowledges that if there is a change to any of the particulars required by law to be included in a written statement of employment particulars, the employer must notify this to the employee in writing within one month of the new terms taking effect.

The Code adds that even where changes have been agreed, it is good practice for the employer to invite feedback about the changes as employees adapt to them, and consider what might be done to mitigate any negative impacts on employees.

Imposing new terms unilaterally

The Code recognises that where it has not been possible to reach an agreed outcome with employees and/or their representatives on the proposed terms, some employers may decide to try to impose those terms anyway.

It flags up that an employer who seeks to rely on an existing clause which purportedly gives them a power to impose contractual changes should consider the scope of that power and the legal limitations on using it. We would strongly encourage any employer who is considering relying on such a clause to seek our advice, as it might not have the intended effect – particularly if it describes a wide-ranging, general power to make changes.

The Code makes the point that if there is no term in the employee’s contract allowing the unilateral change, this will usually amount to a breach of contract, and an employee might:

• resign and claim constructive unfair dismissal
• refuse to work under the new terms
• continue working, but under protest, potentially also bringing claims such as for breach of contract and/or any shortfall in wages
• work under the new terms, but claim for unfair dismissal
• bring a discrimination claim, if, for example, they consider that they have been treated less favourably on the basis of their protected characteristic under the Equality Act 2010

Including for these reasons, we would advocate that rather than seeking to impose new terms unilaterally, employers should opt for dismissal and re-engagement, as whilst that brings its own risks (see below), they tend to be fewer, and that approach tends to provide more certainty.

However, if an employer does decide to impose new terms unilaterally, a point not emphasised in the Code is that in the case of employees with unfair dismissal protection, this should be done after appropriate individual consultation (in addition to any collective consultation that might have taken place), and the employee should be offered the right to appeal the decision. We would encourage employers who are considering such an approach to obtain our advice in order to minimise the scope of grievances, tribunal claims or otherwise unrest.

The same guidance applies as regards notifying changes in writing and inviting feedback as where changes are agreed (see above).

Dismissal and re-engagement

The Code states that dismissal and re-engagement should be treated by employers as a last resort, who should ensure that the only terms which are changed are those which have been subject to the information-sharing and consultation process, and not use this as an opportunity to make any further changes.

The Code encourages that employers should give as much notice as reasonably practicable of dismissal, complying with the employee’s contractual notice, or the statutory minimum if this is longer. It states that the employer should also consider whether employees might benefit from more time in order to make arrangements which might better enable them to accommodate the changes, e.g. where there are changes to working hours, some employees may need to adapt childcare arrangements or plan new journeys to work.

The Code also states that employers should also consider whether there is any practical support it might offer to employees, such as relocation assistance, career coaching or counselling for emotional support.

It also suggests that employers might commit to reviewing the changes at a fixed point in the future, possibly with a view to reconsidering whether it still considers the changes to be necessary; and that if implementing more than one change, they might be introduced on a phased basis.

The Code flags up that, in the case of an employee with over two years’ service, in order for a dismissal to be fair, the employer must have:

• a potentially fair reason for dismissal
• acted reasonably in the circumstances in treating that reason as a sufficient reason for dismissal
• followed a fair procedure

What is not expressly emphasised by the Code is that another consideration is that where an employer proposes to dismiss 20 or more employees ‘at one establishment’ within a 90 day period, statutory provisions relating to collective consultation can apply which, if not complied with, can result in each affected employee being entitled to a compensatory award of up to 90 days’ pay.

We would encourage employers to seek our advice before embarking on any process which might result in dismissal with a view to ensuring that all aspects of employment law and good practice are complied with, including as regards fairness and collective consultation.

The Code states that it is good practice for the employer to set out the new terms of employment in writing, and of course the employer must also comply with its obligations in respect of the minimum written statement of employment particulars required by law.

As in the case of agreed or otherwise unilaterally imposed changes, the Code states that it is good practice for the employer to invite feedback about the changes as employees adapt to them, and consider what might be done to mitigate any negative impacts, in order to reduce the likelihood of the revival of conflict over the new terms.

Non-compliance

A failure to observe the Code will not give rise to a stand-alone claim. It will, however, be admissible in evidence in relevant court or tribunal proceedings and could, for example, influence the outcome of unfair dismissal claims. Tribunals will have the power to increase or decrease compensation (but not protective awards) by up to 25% in the event that either party unreasonably fails to follow the Code.

The future

The Code was drawn up under the previous Conservative government. The Labour Party has indicated that it plans to ban the practice of dismissal and re-engagement as a lawful means of changing contractual terms altogether, and has deemed the Code "inadequate", so it may be that the new government will seek to amend the Code or withdraw it altogether.

For more information and/or advice, please contact the Employment Department.