Fire and Re-hire: the updated statutory code of practice

Following its consultation on the DBEI’s Draft Code of Practice on Dismissal and Re-engagement between January and April 2023, the government’s response was published last month, together with an updated Code of Practice on Dismissal and Re-engagement “the Code” and an explanatory memorandum for Parliamentary consideration.

The purpose of the Code is to ensure good practice is followed in circumstances where a business considers the need to change employees’ terms and conditions. As employers would always have been advised by a sound employment lawyer, the key requirements in such a scenario are:

• Seeking to implement changes by agreement in the first instance
• Having (and explaining) the business need(s) which makes the changes necessary
• Only moving to dismissal and an offer of re-engagement as a last resort

The Code was laid before Parliament on 19 February 2024 for approval by both Houses. The government published its response to the consultation on the draft statutory Code of Practice on Dismissal and Re-engagement on 21 February 2024.

Government response to the consultation and key changes in the final Code

Whilst the key requirements of the draft Code remain in place, the consultation resulted in amendments resulting in a shorter and more concise updated Code. The order of the procedural steps has also been adjusted so that it is now more logical, requiring the employer to reconsider (and update) the original plan after the provision of information and consultation stages. Related to this, the reconsideration obligation has been pared back so that the employer should now only re-examine its proposals / plans and not also its business strategy. 

The previous signpost to ACAS has been reinforced, with the Code specifying that this should be done before the prospect of dismissal and re-engagement is put to employees. It is noteworthy that the Code states that where “should” is used , this indicates a recommendation; whereas the government response to the consultation states “should” indicates an obligation. The Code itself will take precedence.

The government also decided to retain the stipulation that dismissal and reengagement should be a last resort for employers, notwithstanding representations during the consultation (including from us!) that this is a higher hurdle than that required by the unfair dismissal legal test which requires a dismissal to be within the band of reasonable responses. Even if the employer has genuinely and carefully (ie reasonably) weighed up the options and made this decision for sound business reasons, the employee could still seek to argue that it was not a last resort. We expect tribunals will be required to provide guidance on this tension once the Code comes into force.

Guidance for employers in the Code

In addition to codifying the basic principles identified as key requirements above, the Code provides the following further good practice guidance:

• Employers should not raise the possibility of dismissal and reengagement as a threat where it is not actually envisaged, nor raise the prospect unduly early where it is a possibility, as this may be detrimental to seeking an agreed outcome.
• In any event, the employer should contact ACAS for advice before raising the prospect of dismissal and reengagement with employees / representatives.
• In terms of the provision of information, as much information as possible should be provided to enable the employees / representatives to understand the reasons for the proposed changes, be able to ask questions and make counter proposals. This is always with a view to enabling the parties to reach an agreed outcome and should be done as early as reasonably possible to enable meaningful consultation.
• In particular, an employer should consider providing information about:
  • what the proposed changes are
  • who will be affected
  • the business reasons for the proposed changes
  • anticipated timings and reasons for them
  • alternative options that have been considered
  • proposed next steps
• Ideally, information should be in writing and communications should seek to avoid excluding anyone – as always, employers should not forget to include people away from the workplace (eg on maternity or sick leave) and those whose access to regular communication channels is limited or who need reasonable adjustments.
• Further information may be requested by the employees / representatives and the employer needs to decide whether it is appropriate to provide it, taking account of the principles set out above. The employer may conclude that it is unable to agree if, for example, it considers the information confidential or commercially sensitive.

• Consultation should be undertaken:
  • for as long as reasonably possible, by engaging openly and in good faith, and with a view to achieving an agreed outcome; and
  • with any recognised trade union or, where there is not one, an appropriate pre-existing employee representative body if there is one; or employee representatives chosen specifically for the consultation in question; and / or the affected employees individually. The employer may choose whichever option is reasonable in the circumstances.
  • The employer should be clear as to its objectives and genuinely consider alternative proposals.

• Once the consultation has taken place, the Code goes on to specifically require the employer to re-examine its proposals including whether it still considers the changes are needed after considering the representations from employees / representatives during the consultation.
• In doing so the employer should consider the potential risks in proceeding with the proposed changes. These include risks to its reputation and workforce relations, as well as possible industrial action, litigation and/or loss of valued employees.

• If changes are agreed, they should be communicated / confirmed in writing including when they will come into effect giving as much notice as possible.
• Further, the Code reminds employers that there is a legal obligation to provide written confirmation within one month of a change if the change affects the basic employment particulars captured in the employment contract / terms and conditions / statement of employment particulars.
• The Code also recommends it is good practice to follow up after a change has been implemented to invite feedback with a view to ascertaining whether any negative impact can be mitigated.

• The Code considers the employers options if changes are not agreed.
• This includes urging caution and consideration of the potential industrial relations and litigation risks of unilaterally imposing new terms, even if the employer has the contractual right to do so, but especially if there is not a contractual term allowing such a change. The potential options (including employment tribunal / court claims) open to an employee in these circumstances are listed in the Code.
• The other option, of course, is dismissal and reengagement, which should be treated as a last resort, as discussed above.
• The Code reminds employers that, if the dismissal is to be legally fair, the employer must have:
  • a fair reason for the dismissal
  • acted reasonably in treating that reason as sufficient to result in dismissal; and
  • followed a fair procedure.
• The Code also states that an employer must give the more generous of the contractual or statutory notice period which applies to the employee(s) before implementing the changes. However, it goes further, by suggesting that the employer should “give as much notice as reasonably practicable” and consider allowing longer than its legal obligations require, to allow employees more time to make arrangements to accommodate the changes (such as childcare or travel arrangements).
• When setting out the new employment terms, the Code specifies that the employer should change only those terms which have been concerned in the information-sharing / consultation exercise, which is a common issue in employment tribunal cases concerning dismissal and reengagement.
• The provisions about providing the new terms in writing and confirming the new contractual terms in writing within one month are repeated; and employers are instructed that the reengagement should happen as far as is reasonably practicable. In our experience, this usually (and is best to) take place immediately following the termination so that there is effectively no gap. 
• The Code also makes good practice “gold plating” suggestions such as phasing in a series of changes where there are more than one; offering other support to employees (such as relocation assistance, counselling etc); and inviting feedback to seek to minimise any negative effects that affected employees report having arisen from the changes.

Consequences of breaching the Code

A breach of the Code does not, in itself, make an employer liable to a specific claim in the Employment Tribunal. However, the Code will be taken into account by Tribunals considering cases involving dismissal and reengagement and there is a power conferred on Tribunals to apply an uplift of up to 25% to any compensation awarded where a breach of the Code is found.

Interplay with other information and consultation obligations

The Code recognises that other information and consultation obligations may arise for an employer alongside those in this Code, but does not go any further in setting out how those obligations will interplay with those in this Code. These include TUPE and redundancy situations as well as pensions scheme changes and where health and safety implications arise from an employer’s proposals. Also, an employer may have its own information and consultation agreement with a recognised trade union or appointed representative body, specific relevant provisions of which would also need to be observed.

Some more complex features involve the interplay between redundancy and dismissal and re-engagement situations. The Code has been amended to clarify that, while it will not apply where an employer is only envisaging making employees redundant, in scenarios where an employer is envisaging both redundancy and dismissal and re-engagement in respect of the same employees, the Code will apply for as long as dismissal and re-engagement remains an option.

Comment

Whatever the size of the employer, our practitioners agree that managing situations which ultimately require a change to employees’ terms and conditions is often extremely challenging for employers, not least because it usually only happens in an intrinsically fraught situation such as when a business is in difficulty or perhaps when established ways of working are failing.  In addition, getting the stages of the procedure “right” are an added pressure and element of risk.

As a codification of good practice, the Code is a helpful guide; however, the practicalities of implementing and navigating through what is, more often than not, a charged consultation process will continue to require very careful consideration.