A draft order (Order), coming into force on 20 January 2025, will give employment tribunals (ETs) the power to apply an uplift or reduction in compensation of up to 25% in fire and rehire collective consultation claims where a party fails to follow the Code. There is currently no standalone claim for breach of the Code’s provisions, but it must be considered by ETs in relevant cases, including unfair dismissal.
What is the Code?
The statutory Code of Practice on Dismissal and Re-engagement (the Code) came into effect in July 2024. In short, the Code provides guidance on the steps employers should take when collectively consulting with employees about proposed changes to their terms and conditions of employment. The Code also provides guidance on minimising the practice of dismissal and re-engagement, also known as fire and rehire. Fire and rehire is when an employer dismisses employees who have not agreed to changes to their terms and conditions of employment and offers them ongoing employment under new terms and conditions. Generally, these new offers of ongoing employment are made at the same time the dismissal notice is given. It is a drastic option with many consequences: legal, reputational and in terms of employee morale.
Under the Code, employers should consult with employees “for as long as reasonably practicable” about any proposed changes to their terms and conditions. The Code is therefore silent when it comes to providing a minimum consultation period. The Code further emphasises that employers should only engage in fire and rehire as a last resort following “a thorough and open information-sharing and consultation process“, which includes “genuine consideration of any reasonable alternative proposals“.
Fire and rehire – the Employment Rights Bill
The Employment Rights Bill (the Bill), expected to come into force in 2026, is intended to introduce more direct measures to prevent fire and rehire practices. Under the Bill, dismissal following an employer’s attempt to vary an employee’s terms and conditions of employment without their agreement would generally be considered automatically unfair. As a result, employees dismissed in this fashion, even with less than two years’ service, would be eligible to raise a claim against their employer.
The Bill would permit fire and hire in exceptional (and very hard to prove) circumstances. Essentially an employer would only be able to fairly dismiss and rehire if they can:
- provide evidence of financial difficulties;
- show that the reason for the contract variation was to eliminate, prevent, reduce or mitigate those financial difficulties; and
- show that they could not have reasonably avoided the need to vary the contract terms.
Even if the exception applies, employers will still face the hurdle of proving to an ET that the dismissal was actually fair in the circumstances. Employers, who meet the above criteria and can demonstrate the required financial predicament, should be able to improve their chances of an ET finding in their favour on fairness by ensuring they consult with the employee and any relevant trade unions or employee representatives before deciding to dismiss.
What do these wider changes to firing and rehiring mean for employees and employers?
The new Order, Code and Bill will make it significantly harder for employers (and potentially costly) to make changes to terms and conditions of employment without individual or collective support. It will be ever more important that employers properly explore alternative options to dismissal and re-engagement. Employers should also work collaboratively with employees and their representatives and consider whether they can offer incentives in exchange for employees agreeing to amend their contractual terms, so avoiding dismissals in the first place.
In the meantime, employers considering fire and rehire to vary employees’ terms and conditions need to be mindful of the reputational risks associated with the practice and carefully consider the guidance in the existing Code. From 20 January 2025, employers should also be prepared for the possibility of a notable increase in compensation awards, as well as heightened scrutiny, if they unreasonably fail to follow the Code.
If you have any questions or require assistance relating to dismissal or redundancy procedures, please get in touch with your usual Dentons contact.
