There are many reasons why an employer may wish to change the terms of an employment contract. However, where the change is unfavourable to the employee, particularly in relation to pay or benefits, the employee in question might not give their consent to the proposals. If the issue cannot be solved by negotiation, an employer can terminate the existing contract and offer the employee a new one. This is a practice commonly known as fire and re-hire.
There has been widespread public controversy in recent years when it comes to this business practice, which led the previous government to promise to introduce a new statutory code of practice, to set out practical guidance for employers and employees. This new Code came into force on 18 July 2024 and it is crucial that employers familiarise themselves with the key provisions of the code. To assist, we have summarised the key points of the Code below:
- Tribunal Uplift
While standalone claims cannot be brought for a failure to follow the new Code, Employment Tribunals will be able to take such a failure into account. In employment claims, including those brought for unlawful deduction of wages, detriment or unfair dismissal, compensation can be uplifted by up to 25% if the Tribunal finds that the employer unreasonably failed to follow the Code.
- Long Consultation Period
The Code has introduced a requirement for employers to consult 'for as long as reasonably possible' and in 'good faith', though it is important to note that no minimum time period has been recommended. Employers are also told to contact Acas at an early stage and that this contact must be made before they raise the potential of fire and rehire with their workforce.
- Information Sharing
Employers are now required to share as much information regarding the proposals, as is reasonably possible. This information must also be shared as early as reasonably possible in the process, so that employees are able to understand the reasons for the proposed changes, can ask questions and make counterproposals.
- Alternative Options
Once the employer becomes aware that employees / their representatives, do not agree to the proposed contractual changes, but the employer considers that the changes are necessary, the employer should re-examine the proposals. When re-examining, the employer should consider feedback received from the employees / their representatives in tandem with the objectives the employer is seeking to achieve.
- No Unnecessary Mentions
The Code further seeks to ensure that the employer does not, as a negotiation tactic, raise the prospect of fire and rehire unreasonably early. It also makes clear that employers should not threaten dismissal if it is not actually envisaged that it could occur.
- Last Resort
The Code states that the use of fire and re-hire should be treated as a last resort. It does clarify that the practice can be used if an employer has participated in a thorough and open consultation process and genuinely considered reasonably alternative proposals. The Code goes on to warn employers of the negative consequences of the practice, including the legal and reputational risks.
- If All Else Fails
If, having failed to reach an agreement with the employees / their representatives, an employer decides to proceed with the process of fire and re-hire, they must:
- Have a potentially fair reason to dismiss;
- Give employees as much notice as reasonably practicable (being at least the minimum statutory or contractual notice);
- Consider whether employees might benefit from more time to make arrangements to better accommodate the changes;
- Consider if any practical support, such as relocation assistance or counselling, should be offered to any employees; and
- If implementing more than one change, consider whether to implement those changes in phases.
While the Code does not bring an outright ban on fire and rehire tactics, it significantly raises the bar for employers when they might be considering dismissal and re-engagement. It is, therefore, vital to make sure that employers have a full understanding of the Code as it stands and how it might impact any future employment contract negotiations. All the above does need to be caveated with the fact that the Code may not remain in its current form for long.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.