Written by Brabners LLP
On 29 March 2022, in the wake of P&O Ferries’ dismissal of around 800 employees without consultation, the government announced that it would introduce a code of practice regarding the use of so-called “fire and rehire” tactics (AKA “dismissal and re-engagement”) to enforce changes to employees’ terms and conditions of employment. It was proposed that the code would set standards for businesses to hold fair, transparent and meaningful consultations on proposed changes to employment terms and conditions.
Last month BEIS published the draft Statutory Code of Practice on Dismissal and Re-engagement (the “Code”). The government has launched a consultation seeking views on the draft Code which is open until 18 April 2023.
Although the Code is most likely to be relevant in circumstances where an employer wishes to enforce changes to an employee’s contractual terms and conditions, umbrella companies affected by the Harpur Trust v Brazel judgement should be aware that if they are considering terminating the employment contracts of their umbrella employees and offering them a contract for services instead, this would amount to a dismissal and re-engagement and would be caught by the new Code (when it comes into force).
The Code
The Code is designed to ensure that an employer takes all reasonable steps to explore alternatives to dismissal and re-engagement, and that it engages in meaningful consultation with trade unions, other employee representatives or individual employees.
An employer should not use threats of dismissal to put undue pressure on employees to accept new terms instead of seeking to find an agreed solution. Employers adopting dismissal and re-engagement practices should be aware that even if they follow the Code, they may face unfair dismissal claims (if the employee has 2 years’ continuous service) and/or breach of contract claims if the employee is not given the requisite period of notice of termination of their employment.
The Code will not apply where an employee is dismissed because there is a genuine redundancy situation. However, the principles set out in the Code will be similar to those which apply when undertaking a redundancy process. Specifically, employers will be expected to inform, consult, reassess in the light of consultation, seek to mitigate the effect of changes and dismiss only as a last resort.
The Code will apply where both the following conditions are met:
- An employer considers that it wants to make changes to its employees’ contracts of employment; and
- The employer envisages that, if the employees do not agree to those changes, it might dismiss them and either offer them re-employment on those new terms or engage new employees or workers to perform the relevant roles on the new terms.
The proposed Code sets out a step-by-step process that an employer should follow to explore alternatives to dismissal. These steps include;
- Communicating the desire to change terms and conditions
- Reassessing the business strategy behind changing terms
- Engaging in meaningful consultation
- Considering the timing of consultation
- Carrying out dismissal and re-engagement as a last resort
- Reviewing changes to terms and conditions and providing practical support to employees
Consequences of not following the Code
It is not proposed that the Code will impose any legal obligations on employers, and a failure to observe the Code will not give rise to any standalone claims. However, if an employee brings a claim relating to their dismissal and re-engagement (such as an unfair dismissal claim), the tribunal will consider whether the Code was followed and may:
- Increase any award it makes by up to 25% if the employer has unreasonably failed to comply with the Code.
- Decrease any award by up to 25%, where it is the employee who has unreasonably failed to comply with the Code.
The proposed Code is still in draft form and it is not yet known when it will come into force. Nevertheless, in the meantime, umbrella companies who are considering changing employees’ employment contracts (or adopting contracts for services instead) remain liable to potential unfair dismissal claims and/or breach of contract claims if the process is not handled correctly. Additionally, if an employer proposes to dismiss 20 or more employees at the same establishment within a 90 day period and offer them re-engagement on new terms, this will trigger collective consultation requirements in the same way as mass redundancies.
Umbrella companies considering changing employees’ contracts would be well-advised to take legal advice before doing so.
This bulletin is for general guidance purposes only and should not be used for any other purpose.
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