The Effective Collective – UK Government ‘cracks down’ on controversial ‘fire and rehire’ practices with revised Code of Practice

Readers of our ‘Effective Collective’ blog posts will know that we have previously covered the (now) controversial ability of employers to ‘fire and rehire’ for the purpose of unilaterally imposing changes to employment terms. 

This practice was, however, thrown into sharp focus by the P&O redundancy exercise in 2022, when P&O dismissed around 800 employees without consultation and replaced them with new workers on new (less generous) contractual arrangements (not therefore a ‘fire and rehire’ exercise as such). 

Following the press furore about P&O’s approach, the Government announced it would review the practice, pledging to introduce a Code of Practice on the use of ‘fire and rehire’ by employers. The consultation paper was published in early 2023 (see our blog post on the consultation here) and yesterday saw the publication of the Government’s response to the consultation alongside an updated draft Code of Practice (the Code) and an explanatory memorandum. 

The Code sets out employers’ responsibilities when seeking to change employment terms and conditions, if there is the prospect of ‘fire and rehire’. The headlines are as follows:

• The scope of the Code is largely unchanged from the draft version circulated for consultation. In particular, it applies regardless of the number of employees affected (or potentially affected) and regardless of the business reasons for an employer wanting to make changes to terms and conditions. However, it is shorter and simpler in its explanation of key issues.
• The Code does not apply to redundancy exercises conducted under the Employment Rights Act 1996 (the 1996 Act). The consultation response states that, where there is a genuine redundancy situation under the 1996 Act, there are well-developed legal principles as to what an employer should do. However, the Code has been amended to clarify that, while it won’t apply where an employer is only envisaging making employees redundant under the 1996 Act, in scenarios where an employer is envisaging both redundancy and ‘fire and rehire’ in respect of the same employees, the Code will apply for as long as ‘fire and rehire’ remains an option. 
• The list of factors that an employer must consider in deciding whether to undertake a dismissal and rehire exercise has remained unchanged from the earlier draft. This list already obliges employers to consider the impact of their proposed changes on employees, by requiring them to consider the potential damage to their relationships with employees or trade unions, the potential for strikes, and the risk of losing valued employees. 
• The Code has been strengthened so that employers now have to contact Acas before raising the prospect of ‘fire and rehire’. This does not, however, change the general position that Acas can be contacted wherever the Code applies. 
• In undertaking a ‘fire and rehire’ exercise, an employer must provide the relevant employees or their representatives with ‘as much information regarding the proposals as reasonably possible’ and ‘as early as reasonably possible’ so that the employees/representatives can engage in ‘meaningful’ consultation. The new Code states that it is ‘good practice’ for that information to be provided in writing.
• If it becomes clear that the employees (or some of them) do not agree with some or all of the changes, then the employer must still re-examine its proposals, taking into account any feedback received from employees/representatives. However, it does not need to re-examine its business strategy (a change from the consultation version of the Code). The Code also retains the language that ‘fire and rehire’ should only be used ‘as a last resort’.
• Phasing in changes proposed by an employer is now a recommendation made by the Code, rather than a requirement. 
• Ultimately new terms may be imposed by an employer, even if not agreed by the employees. However, the Code stresses the potential downsides of unilaterally imposing terms and conditions, including possible unfair dismissal and discrimination claims.

The effect of a failure to comply with the Code is set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (the 1992 Act). A failure to follow the Code does not, in itself, make a person or organisation liable to proceedings, but it will be taken into account in court, employment tribunal or Central Arbitration Committee proceedings. In addition, if an employee brings an employment tribunal claim listed in Schedule A2 to the 1992 Act, the tribunal can increase any award by up to 25% if the employer has unreasonably failed to comply with the Code and reduce any award by up to 25% where it is the employee who has unreasonably failed to comply. 

The Code now heads to Parliament for approval. Subject to that approval, a commencement order will then bring the Code into effect and secondary legislation will be brought forward to amend the 1992 Act to reflect the 25% uplift in compensation point.