Understanding the Fire and Rehire Restrictions: What Employers Need to Know

In recent years, the practice of “fire and rehire” has come under intense scrutiny in the UK. This controversial tactic, where employers dismiss staff and rehire them on less favourable terms, has been criticised for potentially exploiting workers. 

What is Hire and Rehire?

“Fire and rehire” is a controversial employment practice where an employer dismisses staff and then immediately offers to rehire them on new, often less favourable, terms. This tactic is typically used when an employer wants to change employment terms but cannot secure agreement from employees. While employers may view it as a necessary measure during financial difficulties or changing market conditions, critics argue it can be used to erode workers’ rights and conditions unfairly.

Labour’s Proposed Reforms

The new Labour government has signalled its intention to take a stronger stance against the misuse of fire and rehire practices. They have proposed more comprehensive reforms aimed at better protecting workers’ rights while still allowing businesses necessary flexibility. These proposals include making fire and rehire illegal as a negotiating tactic, strengthening protections against unfair dismissal, and introducing more severe penalties for employers who breach the new regulations. Labour also plans to enhance the role of trade unions in negotiation processes and improve mechanisms for collective bargaining. While the specifics of these reforms are still being developed, they represent a significant shift towards greater worker protection in employment law.

The government acknowledges that in genuine cases where no other options exist, businesses must have the ability to restructure to ensure their continued viability. However, they emphasise that such restructuring should follow a proper process, one that is founded on open dialogue and mutual understanding between employers and workers. To this end, the government appears to be committed to reforming the law to provide more effective safeguards against potential abuse. The Labour government indicated that it intends to replace the current code of practice. While we have no details on timescales of a possible future ban employers considering this as an option are required to comply with the current code of practice, which came into force in July 2024.

The current code of practice

The Code of Practice (Dismissal and Re-engagement) Order 2024 (SI2024/708) came into force on 18 July 2024. It brought into force a new statutory Code of Practice on Dismissal and Re-engagement, introduced to regulate the use of “fire and rehire” practices when an employer wishes to vary employees’ terms and conditions of employment. The full code of practice can be found here:

https://assets.publishing.service.gov.uk/media/65d35c10423931826ab7b8a0/draft-statutory-code-of-practice-on-dismissal-and-re-engagement.pdf

Although the Code itself does not impose any legal obligations on employers, employment tribunals will be required to take it into account when considering the award of compensation in relevant cases.

Summary of the Official Code of Practice on Dismissal and Re-engagement

The Code of Practice on Dismissal and Re-engagement provides comprehensive guidance for employers considering changes to employment terms that may involve dismissal and re-engagement. Here’s a detailed breakdown of its key components:

1. Overview of the Code

The Code applies to all employers, regardless of size or sector, when considering changes to employment terms that may involve dismissal and re-engagement. It’s crucial to note that while the Code itself is not legally binding, employment tribunals will take it employer’s failure to comply with the code into account when determining compensation. Failure to follow the Code could result in up to a 25% increase in compensation awards for successful unfair dismissal claims.

Key Legal Considerations for Employers

1. Thorough Business Case
   • Legal Implication: A well-documented business case is crucial for defending against unfair dismissal claims.
   • Our Advice: Clearly articulate and document the rationale for proposed changes, including financial projections and market analysis where relevant. 

2. Early and Comprehensive Consultation

1. • Legal Requirement: Employers must inform and consult employees about proposed changes as early as possible.
   • Our Advice: Develop a clear communication strategy and maintain detailed records of all consultations. This documentation can be vital in demonstrating compliance with the Code.

3. Exploring Alternatives

1. • Legal Implication: Failure to consider alternatives could be seen as unfair dismissal.
   • Our Advice: Document all alternatives considered and reasons for rejection. This could include options like voluntary changes, phased introductions, or temporary alterations.

4. Fair and Non-Discriminatory Process

1. • Legal Requirement: Ensure decisions do not disproportionately affect protected groups.
   • Our Advice: Conduct an equality impact assessment of proposed changes. Be prepared to justify any disparate impact on particular groups.

5. Compliance with Existing Agreements

1. • Legal Consideration: Changes must comply with existing employment contracts and collective agreements.
   • Our Advice: Review all relevant contracts and agreements before proposing changes. Consider seeking union agreement where applicable.

6. Proper Notice and Re-Engagement Offers

1. • Legal Requirement: If proceeding with dismissal, proper notice must be given, and re-engagement offers must be clear.
   • Our Advice: Ensure re-engagement offers clearly outline all changes to terms and conditions. Consider providing a side-by-side comparison of old and new terms.

Practical Steps for Employers

1. Conduct a Risk Assessment: Before initiating any changes, assess the potential legal risks and employee relations impact.
2. Develop a Comprehensive Timeline: Create a detailed plan that allows sufficient time for each stage of the process, including consultation and consideration of alternatives.
3. Train Relevant Personnel: Ensure that all managers involved in the process understand the Code’s requirements and the importance of compliance.
4. Maintain Open Dialogue: Foster an environment of open communication throughout the process. This can help identify potential issues early and demonstrate good faith efforts to reach agreement.
5. Seek Expert Advice: Given the complexity of the Code and its potential legal implications, we strongly recommend seeking legal counsel at each stage of the process.

Potential Pitfalls to Avoid

1. Rushing the Process: The Code emphasises the need for thorough consultation. Attempting to expedite changes could be viewed unfavourably by tribunals.
2. Inadequate Documentation: Comprehensive record-keeping is crucial. Lack of documentation could weaken your position in potential disputes.
3. Inflexibility: The Code stresses the importance of considering alternative proposals. Demonstrating flexibility and genuine engagement with employee suggestions is key.
4. Neglecting Individual Circumstances: While changes may be applied collectively, be prepared to consider individual circumstances, particularly for employees with protected characteristics.

Conclusion

The new Code of Practice significantly raises the bar for employers considering dismissal and re-engagement practices. While it presents challenges, following the Code diligently can help protect your business from potential legal risks and foster better employee relations.

We are here to guide you through this complex process. If you’re considering changes to employment terms, we strongly recommend seeking legal advice to ensure full compliance with the Code and minimise potential risks.

For more detailed guidance or to discuss your specific situation, please don’t hesitate to contact our employment law team.