Government announces new statutory code to protect employees from “fire and rehire” tactics to change employment terms

On 29 March 2022, the government announced that a new Statutory Code of Practice will be published on the practice of “fire and rehire”, with guidance on how to engage in meaningful consultation with employees.

“Fire and rehire” tactics means the practice of facilitating a change of employment terms by dismissing employees and then immediately re-engaging them on the new terms. Increased public concern over these tactics during the Covid-19 pandemic led to demands for the government to change the law to give employees greater protection. The government regards these tactics as unacceptable but has resisted demands for legislative change. Instead, in December 2021, the Advisory, Conciliation and Arbitration Service (ACAS) published best practice guidance to help employers explore all other options first before considering fire and rehire to change employee contracts, and to emphasise the importance of informing and consulting employees and their representatives. An employer’s failure to follow the guidance might increase an employee’s chances of winning an unfair dismissal claim. But other than that, the 2021 ACAS guidance had no real teeth since it did not amend the law nor give employees any greater rights, whether to compensation or to keep their existing terms of employment.

The announcement of a new Statutory Code comes on the back of the recent events involving P&O Ferries. While the government acknowledges that P&O’s actions were not a case of fire and rehire - rather “fire” without consultation - the government says that greater clarity for employers on how to engage in meaningful consultation is needed. The new Statutory Code of Practice will therefore set out how businesses can hold “fair, transparent, and meaningful” consultation when changing employment terms. It will also include practical steps that employers should follow.

Collective redundancy obligations under UK law

Where an employer is proposing to dismiss as redundant 20 or more employees from “an establishment” within any period of 90 days or less, it has statutory obligations to:

• inform and consult appropriate representatives of the ‘affected employees’ for a mandated period of time (either 30 days or 45 days, depending on the number of employees to be dismissed); and
• notify the Department for Business, Energy and Industrial Strategy (BEIS) in advance

“Redundancy” in this context includes a situation where an employee is dismissed and re-engaged on different terms. Where the employer has failed to comply with the statutory requirements to inform and consult with appropriate representatives, a complaint may be made to the Employment Tribunal for a declaration and a protective award. This can be up to 13 weeks’ gross pay (with no statutory limit).  The claim must be brought by the appropriate representatives rather than the employees, and so individual employees are not able to contract out of this right, for example, by way of a settlement agreement.

Failure to notify BEIS in advance can lead to criminal prosecution against the company and its directors.

What impact would a statutory code have for employers seeking to “fire and rehire”?

A Statutory Code of Practice must be taken into account by an employment tribunal when deciding claims under the relevant employment laws. In this case, it is intended that the tribunal will have power to apply an uplift of 25% of any employee’s compensation where the Code applies and the employer unreasonably fails to follow it. Presumably the intention is for there to be an uplift of 25% on the protective award of 13 weeks’ actual pay, and possibly on unfair dismissal compensation (which from 6 April 2022 is capped at the lower of a year’s pay and £93,878). Other examples of Statutory Codes include the EHRC Employment Statutory Code of Practice which gives guidance on discrimination under the Equality Act 2010, and the ACAS Code on disciplinary and grievances which contains recommendations for handling disciplinary situations at work.

The practice of “fire and rehire” has been the subject of some debate for a while now, but the government has consistently resisted calls to legislate against it. The introduction of a Statutory Code will not change the current law as such, but it will have more bite than the previously published ACAS Guidance. With the Code, there will be a mechanism for tribunals to increase the compensation payable to employees where employers unreasonably fail to observe their statutory obligations to dismiss fairly and to consult and inform employee representatives.

Notably, the introduction of the Code will not prevent employers from dismissing and re-engaging employees as a way to effect a change of terms and conditions. In the interests of preserving good employee relations, employers should attempt to secure the employee’s consent to a change in terms and use dismissal and re-engagement as a last resort where there is a real commercial need to do so. To avoid claims, employers should be diligent with observing the timing of any proposal to dismiss and engage on new terms. When this involves dismissing more than 20 employees at any one establishment within a period of 90 days, employers should consider when they must legally begin collective consultation, also taking into account tactical and commercial considerations around the purpose of what they are doing.

In circumstances where 20 or more employees are being dismissed within 90 days, but not re-engaged, the Statutory Code will likely deter employers from dismissing without notice or consultation. However, although the penalties for failing to collectively consult are fairly severe and can include criminal liability, a determined employer will still be able to circumvent their legal obligations and dismiss without notice provided they are prepared to pay the price, both in monetary and reputational terms. Given the public interest around the practice of fire and rehire, and the negative and damaging publicity that it can clearly create, employers would be wise to tread very carefully before deciding to ignore the statutory obligations to inform and consult.

What impact would a statutory code have for employers of seafarers?

There are two key points here:

1. The obligation to inform and consult appropriate representatives is triggered where an employer proposes to dismiss 20 or more employees from an establishment within 90 days. In relation to seafarers, the obligation to consult broadly will only apply if the “establishment” where the employees work is based in the UK. The ‘establishment’ is the local employment unit where the employees work which, in the maritime context, is likely to be the individual ship to which the seafarers are assigned at the time of their dismissal. Whether the rules apply in any particular case is a question of fact and law, and is not always obvious.
2. In some cases, the seafarer won’t have unfair dismissal rights because they have an insufficient connection with the UK. The starting point is that statutory redundancy and unfair dismissal rights only apply to employment in Great Britain. But in exceptional circumstances it might apply to people working abroad. Much will depend on the facts, and the law in this area is complex. A fairly straightforward case of a crew member who might have unfair dismissal rights could be, for example, a seafarer who lives in Dover and works on a ferry which travels from Dover to Calais. A more fact-dependent case, on the other hand, would be a seafarer who lives aboard a yacht spending half its time in UK waters and half abroad. In those circumstances, whether they would have unfair dismissal rights would depend on whether there is a strong enough connection with Great Britain, and British employment law.

Where for these jurisdictional reasons the seafarer is unable to bring an unfair dismissal claim, and where the consultation rules do not legally apply because the establishment is not based in the UK, the Statutory Code will not be relevant in any claim before an employment tribunal. However, it will always be important to consider following the spirit of the Code, since this could go some way to mitigating reputational damage.

For more information on the package of measures announced by the government to protect seafarers, including the extension of the national minimum wage, see our client update Government announces new measures to protect seafarers