The Department for Business, Energy, and Industrial Strategy (BEIS) has released a draft Code of Practice to help employers navigate controversial ‘fire and rehire’ processes where agreement to change staff terms and conditions has failed.
Background
During the Covid-19 Pandemic, many businesses were forced to change how they operate. This often resulted in a requirement to change staff terms and conditions of employment, such as hours of work. As substantive contractual terms cannot be changed by one party unilaterally, a consultation process must take place with staff in order to obtain their consent to any proposed changes.
Where consultation is unsuccessful, which is particularly likely if the new terms are less favourable, an employer may consider terminating the employee’s contract and offering to re-engage them under a new contract. This is often referred to as ‘fire and rehire’ and concerns have been expressed that this practice applies undue pressure on employees to agree to worse terms and conditions.
Some high-profile examples described as ‘fire and rehire’ are that of British Airways and British Gas, and more recently P&O Ferries.
In November 2021, following a request by the government to investigate ‘fire and rehire’ practices, Acas published guidance on Making changes to employment contracts - employer responsibilities.
The government has rejected banning ‘fire and rehire’ practices completely. However, on 29 March 2022, it announced that a new Statutory Code of Practice would be published on the use of ‘fire and rehire’ to unilaterally change employees' terms and conditions.
BEIS has now released the Draft Statutory Code of Practice on Dismissal and Re-engagement (the Code) based on the Acas guidance which will be subject to consultation, seeking views on the Code, until 18 April 2023. Comments may be submitted by email to:dismissalandreengagement@beis.gov.uk.
Once finalised, the Code will be issued as a statutory code of practice under section 203 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992). This means that where an employer has failed to take the Code into account, courts and tribunals will have the power to apply an uplift of up to 25% of compensation awarded in a relevant claim. This is similar to the requirement to follow the Acas Code in respect of Disciplinary and Grievance processes.
The Code will apply in the following circumstances:
- An employer considers that it wants to make changes to its employees' contracts of employment.
- The employer envisages that, if the employees do not agree to those changes, it might dismiss them and either offer them re-employment on those new terms or engage new employees or workers to perform the relevant roles on the new terms.
However, other legal obligations may overlap with the guidance set out in the Code, such as collective redundancy consultation or collective bargaining obligations where there is a recognised trade union. Each of these other legal obligations should be adhered to independently of the Code.
Please contact us for legal advice in any individual circumstances.
Some key requirements of the Code
- Communicate the proposed change to the terms and conditions to employees, and explain the reasons for the need for change. Share as much information as possible.
- Consultation should take place in good faith and with an open mind.
- If it becomes clear employees will not agree, re-examine the business strategy and plans in light of the potentially serious consequences for employees.
- Consider the negative consequences of acting unilaterally, such as reputational risk and damage to industrial relations, the potential for industrial action, the risk of losing valued employees, and whether there are alternative ways of achieving the same objectives.
- Take all reasonable steps to explore alternatives (including any proposed by employees) and engage in meaningful consultation with trade unions, other employee representatives or individual employees to try to reach an agreed solution.
- Threats of dismissal should not be used to put undue pressure on employees to accept new terms, rather than trying to find a mutually agreeable solution.
- In the absence of agreement, do not consider unilaterally imposing contractual changes unless satisfied that all reasonable alternatives which might result in agreement have been fully explored first.
- As a last resort, be transparent about the fact that the Company may be prepared, if agreement cannot be reached, to terminate and offer to re-engage staff in order to unilaterally impose changes.
- If required, give as much notice as possible of any dismissals and consider whether any employees might need longer notice to make arrangements to help accommodate the changes (for example childcare arrangements or transport to work) or seek alternative work.
Failure to follow the Code
A failure to follow the Code will not give rise to any standalone claims. However, the Code will be admissible in evidence in proceedings before a court or employment tribunal, and any provision of the Code which is relevant to those proceedings must be taken into account by the court or tribunal.
In addition, in some circumstances the tribunal will be able, once the Code is in force to:
- Increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the Code.
- Decrease any award by up to 25%, where it is the employee who has unreasonably failed to comply with the Code.
Comment
Christine Jamieson Senior Paralegal in our Employment team comments:
“Many businesses will already follow the premise of the Code as a matter of good practice. The process outlined may also appear familiar to those who have undertaken a redundancy exercise for example: inform, consult, consider all alternatives, and dismiss only as a last resort.
“In practice, whilst larger employers may be more able to follow the required processes, smaller employers may simply not have the resources to do so.
“Additionally, urgent changes to terms and conditions may be required to avoid collapse of a business, and time to engage in meaningful consultation may not be readily available.
“Regardless, the statutory nature of the Code and power of tribunals to apply a 25% uplift to compensation in a relevant claim will require employers to think more carefully about following a fair and meaningful process before imposing any contractual changes.
“Please contact us for legal advice at an early stage if you are considering making any changes to your staff working arrangements.”
