The practice in the UK of ‘fire and rehire’ (i.e. dismissing an employee and offering them a new employment contract on new terms) as a way to change terms and conditions of employment is lawful, but it has been under the spotlight and subject to increased scrutiny in recent years as cases of misuse by some employers have hit the headlines.

In autumn 2021, legislation curbing dismissal and re-engagement was shelved by the UK government and replaced with a commitment for updated and more detailed Acas guidance. That guidance (which is not binding) focusses on the importance of thorough and constructive consultation with staff to explore all alternative options to terminating employment, describing fire and rehire as ‘a last resort’. By spring 2022, the government announced its intention to publish a statutory code of practice intended to crackdown on the inappropriate use of the tactic, with increased punitive financial sanctions for non-compliance.

That draft statutory code of practice has now been published, and a consultation on its content launched. The consultation closes on 18 April 2023, but the publication of any resulting final version is reliant on parliamentary time allowing its completion.

Key points arising from the draft code are as follows:

  • It sets out guidance and accepted standards on how employers should approach changing terms and conditions, with an emphasis on meaningful consultation, transparency and openness. It says that fire and rehire should be a last resort, and that dismissal should not be used as a threat or negotiating tactic where dismissal is not in fact being contemplated.
  • It applies where an employer wants to make changes to terms and conditions of employment and envisages that if employees do not consent to those changes they might dismiss them and offer re-employment on new terms or engage new employees on the new terms. It does not apply where the reason for the dismissal is redundancy, but it is not immediately clear how this will operate where terms and conditions changes are being explored as an alternative to redundancy.
  • The code applies regardless of the number of employees affected and regardless of the business objectives or reasons for seeking the changes (presumably unless it is a redundancy situation where the code does not apply).
  • There is a big emphasis on ‘meaningful consultation’ (i.e. in good faith and with a view to reaching agreement), and taking all reasonable steps to explore alternatives. If negotiations are not fruitful, the draft code requires employers to revisit their business strategy and plans. The code also reminds parties that Acas can assist with resolving conflict and help with negotiation, although it is unclear whether an unreasonable failure to involve Acas would itself be a breach of the code, or how far a ‘reasonable’ employer would be expected to go in revisiting their strategy.
  • It also promotes transparency and openness in sharing information (the extent of which might usually be reserved for collective consultation where 20 or more employees are affected), and for employers to be honest about dismissal and re-engagement as an option if agreement cannot be reached.
  • It recommends that employers seek to mitigate against the impact of the changes e.g. through a phased implementation, regular reviews, and providing practical support (e.g. relocation assistance, and career and emotional support through coaching/counselling). Again, it is unclear how far an employer would be expected to go to avoid being unreasonably in breach of the code.
  • The code will not be legally binding, but it will be relevant to whether an employee who has been dismissed as part of a ‘fire and rehire’ has been fairly dismissed under UK unfair dismissal laws. In addition, the employment tribunal will have the power to uplift or reduce compensation by 25 per cent where there is unreasonable non-compliance with the code. It is unclear how this penalty will operate, particularly whether the uplift could allow compensation awards to exceed the current financial caps under unfair dismissal law. Assuming the 25 per cent uplift works in the same way as non-compliance with the established Acas statutory code on discipline and grievance, financial penalties would remain subject to existing caps. If this is the case, the proposed new penalty may be more style over substance, unlikely to have much impact on affected staff, nor significantly increase an employer’s financial exposure.

Although the new code will be welcomed by many, it remains to be seen if it will be sufficient to deter abuse of this practice. Employers who operate fire and rehire strategies responsibly will welcome the code as setting out the steps an employer needs to follow in order to fairly dismiss an employee as part of a ‘fire and rehire’.

Parties wishing to comment on the draft code can do so online before 18 April 2023.