Government announces new code of practice on fire and re-hire

In the wake of the public outcry over the P&O affair, the Government has announced that it will be introducing a statutory code of practice which will “detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms”.

While the exact facts surrounding the sudden dismissal of nearly 800 workers by P&O earlier this month have not yet been established, the management has admitted that it failed follow its legal obligations to consult its workforce in advance of the dismissals. This is likely to result in claims for unfair dismissal by individual workers, plus liability for a protective award for failure to follow the collective consultation obligations that apply where large-scale redundancies are proposed.

Dismissal and re-engagement – or fire and re-hire – is traditionally used to seek to impose changes to terms and conditions where voluntary agreement cannot be obtained. This tactic relies on the fact that, while it is not possible to impose major changes unilaterally, under UK law a contact of employment can normally be terminated by giving the employee their contractual notice or making a payment in lieu. Although terminating an employment contract on notice can result in a claim for unfair dismissal (if the employee has served the necessary qualifying period) the risks of such a claim can be minimised by demonstrating a sound business reason for the changes, consulting in advance and offering employees the option of continued employment on the new terms.

There has been increasing disquiet over “aggressive” use of these tactics in recent years. These concerns prompted ACAS to publish guidance last year, which advised that such an approach was “an extreme” step and should be seen as an option of last resort.

The proposed code of practice on fire and re-hire is an attempt to provide employers with stronger incentives to comply with the law in this area. The government says that the code will “clarify and give some legal force to government expectations that employers should behave fairly and reasonably when seeking to change employees’ terms and conditions.” That choice of words seems to suggest that the Government will be seeking to reinforce best practice, rather than simply clarifying current legal requirements.

In addition, the Government is proposing to give employment tribunals the power to uplift compensation by up to 25% in “relevant” cases. It mentions unfair dismissal by way of example, but it is not clear whether this uplift would also apply to protective awards for breach of collective consultation requirements.