In our recent Employment Law podcast
, Adam Williams
, Rebecca Thornley-Gibson
and Simon Bellm
discussed employers’ use of the “fire and rehire” tactic and the introduction of a new draft Code of Practice on Dismissal and Re-engagement following the P&O Ferries events of 2022. Set out below is a summary of the points discussed.
What is fire and rehire?
“Fire and rehire” is the colloquial term for when an employer wishes to make changes to its employees’ contracts of employment and it proposes that, if the employees do not agree to those changes, it may dismiss them and either offer re-engagement on the new terms or seek to replace them with new employees.
Is fire and rehire legal?
Where an employee refuses to agree to a change to their contractual terms, the employer may terminate the old contract with due notice and offer the employee new terms and conditions. So, fire and rehire is not illegal per se
However, the termination could give rise to an unfair dismissal claim
even if the employee accepts the new job. Whether or not the claim will be successful will depend on the reason for the changes and the level of consultation.
Employees may also bring unlawful deduction of wages claims where they have refused to accept a pay reduction. There is also the risk of industrial action. Therefore employers should be aware of the legal risks of fire and rehire and also the negative impact on employee relations and corporate reputation.
Why was the fire and rehire Code introduced?
In March 2022, P&O Ferries made just under 800 of its seafarers redundant with immediate effect and without consultation, and proposed to replace the employees with third party agency workers at a lower salary. The move attracted a huge amount of attention from press and unions. Ironically, P&O did not really engage the fire and rehire tactic as it did not provide employees with the option of accepting new terms and conditions. The move by the government to introduce a fire and rehire Code of Practice appears to be a reaction to large corporates ignoring good employment practice and legislation and is an attempt to show that it is taking steps to prevent this in the future.
Our recent article, Government opens new consultation on Statutory ‘Fire and Rehire’ Code of Practice, sets out an overview of the steps employers would need to take when considering the use of fire and rehire to comply with the current version of the Code.
Will the Code discourage employers from using fire and rehire tactics?
The Code provides that where an employer has unreasonably failed to comply with the Code, any award for compensation in relevant proceedings will be increased by 25%. While this may be a financial deterrent for some employers with limited resources, larger organisations may budget for such an outcome. A more effective deterrent may be a “name and shame” blacklist like that in place for breaches of National Minimum Wage legislation or a fine proportionate to an organisation’s turnover.
The purpose of the Code is to ensure that employers take all reasonable steps to explore alternatives to dismissal and engage in meaningful consultation with employees to find an agreed solution regarding new terms. There is a possibility that a tribunal, when considering remedies for breach of the Code,could consider reinstatement or re-engagement as an alternative to dismissal as that would align with the purpose of the Code. When an employee brings a claim for unfair dismissal in such circumstances, the tribunal may consider that it is practicable for the employer to comply with an order for reinstatement or re-engagement as it is less likely that there has been a breakdown in the relationship of trust and confidence which would make reinstatement or re-engagement difficult. The employee may argue that there is no breakdown in the relationship but simply a disagreement as to terms of what the relationship should be.
Reinstatement and re-engagement orders are currently extremely rare so it remains to be determined if the Code in its current format would lead to an increase in these types of orders. If an employer does not wish to comply with a reinstatement or re-engagement order, the tribunal may make an additional award of between 26 and 52 weeks’ pay, subject to the statutory limit on a week's pay applicable at the date of the employee's termination.
Is there a minimum number of dismissals before the Code will apply, like the collective consultation redundancy regulations?
If an employer wishes to make 20 or more redundancies in a single establishment within a period of 90 days or less, the employer must collectively consult with employees. There is no such requirement in the draft fire and rehire Code and the Code may apply to a single employee. Small employers may be surprised to discover this extra layer of compliance when they wish to make contractual changes for only one employee.
Are employers required to appoint employee representatives?
There is no requirement in the Code for employers to appoint employee representatives. However, it does suggest that if there are no existing trade union or appointed representatives, the employer should either consult with each employee individually or consider if it would make sense to allow representatives to be chosen to represent them in consultations. This is an example of a brighter spotlight being shone on the employee voice in an organisation and the involvement of employees in key business decisions that will have on impact on them.
The draft Code proposes that the need for the contractual changes should be reviewed in the future after they have been implemented. This element of the Code would support any arguments for the appointment of a good functioning employee representative group to monitor the effects of the changes.
What are the key dates in the timeline for employers to be aware of in relation of in relation to the Code?
The consultation on the draft Code closed on 18 April 2023. The government will consider the responses received and it is likely to publish the final Code when parliamentary time allows. It is difficult to predict when this could be but our podcast panel estimated towards the end of 2024.
Will the Code make a material difference to the way “unscrupulous” employers approach fire and rehire?
It is likely that the Code will make a difference to how employers approach a contractual change exercise and will encourage employers to think carefully about the process that they adopt. “Unscrupulous” employers may be less likely to take an aggressive stance but we will have to wait and see to what extent tribunals will apply the punitive measures set out in the Code.
For more information about any of the issues covered in this update please get in touch with one of our employment solicitors
today by email or call us on 020 7822 1500