Government consults on draft Code of Practice on “fire and rehire”

• United Kingdom

• Education - Briefings

31-01-2023

 

On 29 March 2022, the Government announced its intention to introduce a new statutory code on the practice of “fire and rehire” which would “clamp down on controversial tactics used by unscrupulous employers who fail to engage in meaningful consultations with employees”. This followed the advice published by ACAS on 11 November 2021 on “Making changes to employment contracts – employer responsibilities”.

The draft Code of Practice was published on 24 January 2023, with a 12 week consultation period ending on 18 April 2023. There is very little in the draft Code that will come as any surprise or diverge from the way institutions would currently deal with the issue of termination and re-engagement, if that becomes necessary. Below we set out in more detail the contents of the draft Code but the key points to note are: 

• the Code will apply where an employer is trying to effect a change to terms and conditions and one of the options, if agreement is not reached, is to terminate and offer new terms

• the guidance in the Code will apply irrespective of the numbers affected

• employers will be expected to follow a step by step process on information, consultation and further consideration before making a final decision

• information and consultation is an on-going process, not a single event

• dismissal and re-engagement should be seen as the last resort only if the employer has concluded that there is no reasonable alternative

• a failure to follow the Code could give rise to an uplift in compensation of up to 25% where a successful claim is brought 

Scope of the Code

The Code aims to provide practical guidance to employers and employees in situations where an employer considers that it wants to make changes to its employees’ contracts of employment and 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 Code does not apply where the reason for dismissal is redundancy. Albeit of course the employer needs to follow a fair process there which, depending on numbers, may also impose an obligation to collectively consult. In fact, many of the steps contained in the Code will also apply in a redundancy situation.

Importantly, the Code applies regardless of the numbers of employees affected, or potentially affected, by the employer’s proposals. This is where it goes beyond the requirement to collectively consult on redundancies as the Code includes, in its step by step process, consultation with trade union or employee representatives even where the proposal is to dismiss and re-engage fewer than 20 employees.

The Code applies regardless of the business objectives pursued by the employer, or the nature of its reasons for seeking changes to its employee’s terms or conditions.

It also points out that an employer must bear in mind all of its legal obligations when changing contractual terms, including those not dealt with in the Code. It gives the example, particularly relevant for institutions, of the need (when there is a recognised trade union) to adhere to any collective bargaining arrangements which are in place before making any offers to directly employees. Failure to do so could give rise to a claim under section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (the 1992 Act) prohibiting inducements relating to collective bargaining.

Legal status of the Code

Whilst a failure to follow the Code will not in itself give rise to legal proceedings, it is admissible in evidence before an employment tribunal and must be taken into account where it is relevant to the proceedings.

In addition, if an employee brings one of the claims listed in Schedule A2 to the 1992 Act, the tribunal can increase any award it makes by up to 25%, if the employer has unreasonably failed to comply with the Code or decrease it by up to 25%, where it is the employee who has unreasonably failed to comply.

The most obvious claim that can be brought under Schedule A2 to which the Code would apply is that of unfair dismissal but institutions should note that it also covers a claim under s145B of the 1992 Act.

The role of trade unions and employee representatives

The Code emphasises the importance of the employer providing information to, and consulting with, employees or their representatives. This should be an ongoing process from when the employer first communicates its proposals until it makes the final decision. Even if the employer considers that the employees or their representatives are unlikely to agree to the proposed change(s), the employer should continue to consult and negotiate for as long as possible in good faith in order to try to seek a resolution.

The question of whom the employer should inform and consult with basically repeats the requirements of collective consultation in a redundancy situation:

• where there is a trade union which is recognised in respect of any of the employees potentially affected, then the employer should consult with that union

• if not it should be with an existing body of employee representatives who could appropriately be consulted on the employer’s proposals

• in the event that there are affected employees who are not represented by a trade union or appropriate group of employee representatives, the employer should ensure that it either consults with each of those employees individually, or considers allowing representatives to be chosen to represent them in consultations

Again, similar to the obligations that already exists in a redundancy collective consultation, the Code states that the employer should engage in good faith and with a view to managing conflict effectively and resolving any dispute as openly and collaboratively as possible. It should listen to trade union and representative feedback and genuinely consider the points that are put forward, including considering any alternative proposals. Consultation must be meaningful process is followed with a view to reaching an agreement and avoiding the need for dismissals – although there is no requirement to reach agreement.

The Code also points out that there are likely to be other legal information and consultation obligations which the employer will need to comply with, including collective consultation where redundancies are proposed (bearing in mind the wider definition of redundancy in a collective consultation context) and the relevant statutory conditions are met, and where there is a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006. There may also be the need to consult with health and safety representatives to ensure the health and safety of employees under any proposed variation in terms and consultation regarding changes to occupational or personal pension schemes.

Reconsidering the need for changes

If, after the information has been provided, the employees are not prepared to accept the proposed contractual changes without further negotiations, the next step for the employer (assuming it decides that it still needs to implement changes, and that this may require either the unilateral imposition of new terms or dismissal and re-engagement) is to re-examine its business strategy and plans. This needs to be done taking into account the potentially serious consequences for employees and any feedback it has received from discussions with employees and their representatives so far.

The employer should carefully consider its analysis of why the changes to the contracts are thought to be needed, including:

• the objectives which it is seeking to achieve

• the negative consequences of acting unilaterally – such as risks to the employer’s reputation; the damage to relationships with its workforce or representative trade unions; the potential for strikes or other industrial action; the risk of losing valued employees; the risk of facing legal claims; and the cost and management time needed to defend those claims

• whether its plans carry any risk of discriminatory impacts – could the changes it is trying to achieve, and its methods for achieving those changes, have a disproportionate impact on employees who share a particular protected characteristic

• whether there are any alternative ways of achieving those same objectives, for example, whether there are existing clauses in the contract it could reasonably rely on, such as mobility clauses

In reality we would expect any employer to have considered all of these matters before embarking on the process, so in many cases it may be just revisiting these in light of any feedback. The Code says it is good practice to return to this analysis at regular intervals, in order to factor in the impact of any new information received, or the results of consultation and negotiations with employees or their representatives.

Providing information

The employer should consider what further information it could share to enable employees and their representatives to understand the need for the changes, and to be able to ask questions and make counter proposals of their own which might help reach agreement. This information should be provided as early as possible in the process and is likely to include:

• the nature of the proposals

• the business reasons and rationale for the proposed changes

• who will be affected by the proposals

• the benefits of any changes

• the impact on the employer if the changes do not take place

• the timeframe for the proposed changes

• any other options that have been considered

Parties should consider the type and style of communication used, to ensure that certain groups are not excluded - for example employees for whom English is not their first language, or neurodiverse employees who might find particular forms of communication easier to absorb than others - and will need to be mindful of any employees who might be absent on sick leave, or on adoption, maternity or paternity leave for example, so they are not excluded.

Where employees or their representatives request more information, the employer should always consider whether this can be provided. If the employer is unable to provide the requested information because it is commercially sensitive or confidential it should explain its reasons for its refusal as fully as possible.

Consultation

Consultation by both parties must be meaningful and conducted in good faith, with the intention of seeking an agreed resolution. The employer should consider whether it has explained clearly its reasons for the changes, should listen carefully to objections raised, and seek to understand the reasons for those objections, and the impact of its proposals on employees. It should also consider any alternative proposals which are made and be prepared to engage in a genuine exploration of whether they are workable or will meet the employer’s objectives.

The Code says it is important that the employer is honest and transparent about the fact that it is prepared, if negotiations fail and agreement cannot be reached, to unilaterally impose changes or to dismiss employees in order to force changes through. But a threat of dismissal should never be used only as a negotiating tactic where the employer is not actually contemplating dismissal as a means of achieving its objectives. 

There is, unlike the redundancy collective consultation, no minimum period over which the Code suggests consultation should take place as it will “depend upon the circumstances” but it says that a longer consultation period is likely to allow for a more in-depth discussion and a deeper understanding of the requirements for the proposals and the nature and intensity of any objections.

The various outcomes

If changes are agreed

The employer should put the changes in writing, setting out clearly what the amendments are and when they will commence. Even if the new terms have been agreed with the trade union, the employer should write to each employee affected, setting out the new terms.

The Code says it is good practice, following the changes, to maintain good communication with the affected employees over a period of time as they adapt to the new terms, to invite feedback about the changes and consider what might be done to mitigate any negative impacts.

Unilateral imposition of new terms

If agreement to the proposed new terms is not reached, an option for employers is to go ahead and impose those terms anyway. The Code reminds employers of the potential legal risks this may entail. An employee may: 

• bring a claim for breach of contract or unlawful deduction from wages

• resign and claim constructive unfair dismissal

• continue working to the new terms (which could then give rise to disciplinary issues)

• bring a discrimination claim if they consider that they have suffered disadvantage which is connected to a particular protected characteristic

These claims are more likely where the employee makes clear their objection to the imposition.

The Code suggests that an employer who decides to impose new terms unilaterally should share the changes in writing with the employee, explain the nature and impact of the changes and notify them of when these changes will apply, giving as much notice as possible. It say the employer should still continue to discuss the changes with the employee, or their representatives, in a genuine attempt to find agreement.

Given the risk of claims, an employer would normally only seek to unilaterally impose new terms where the employees are not financially worse off as a result of the change. Where the change will leave employees financially worse off, an employer may instead consider dismissal and re-engagement.

Dismissal and re-engagement

The Code says dismissal and re-engagement should be the last resort and before making this decision the employer should take some time to re-assess its analysis and again carefully consider:

• whether it is truly necessary to offer these new terms to its employees in order to achieve its objectives

• if there are any alternative options, whether revealed by the employer’s own analysis or suggested by employees or their representatives, which could achieve those same objectives

• if the changes could have a greater impact on one group of employees who share protected characteristics, compared to others

Although contractual notice will need to be given, the Code recommends that the employer should consider whether any particular employees might need longer notice in order to make arrangements which might better enable them to accommodate the changes. For example, where the changes involve changes to working hours, some employees may need more time to make changes to childcare arrangements, or to plan new journeys to work which can accommodate mobility needs.

It also suggests that if the employer is implementing more than one change to terms, it should consider whether it could have a phased introduction of changes over a longer period of time and whether it might be able to agree to review the changes at a fixed point in the future, perhaps with a view to reconsidering whether it still considers those changes to be necessary.

The employer should also consider whether there is any other practical support it might offer to its employees such as relocation assistance, career coaching or counselling for emotional support.

In a dismissal and re-engagement scenario the Code again recommends that the employer continues to review the requirement for the imposed changes, as it might find that, due to a change in circumstances, it is able to discuss a return to the previous terms, or at least to consider alternative proposals which it was not able to accommodate previously. It is also good practice for the employer to continue to monitor the impact of the imposed changes over time to see if it is able to do anything to ameliorate any negative impact on the employees. 

Comment

Much of what is in the Code will come as no surprise to institutions or alter how they have managed such situations to date. Part of it reflects the statutory obligations to collectively consult where employers are proposing to dismiss as redundant 20 or more employees at one establishment (which also applies where the institution is proposing to dismiss and re-engage 20 or more employees in order to effect a change to terms and conditions). The remainder of the Code is very similar to the steps an institution would already take in order to demonstrate it had acted reasonably to get (where possible) agreement to the changes or, where not, to be able to defend a claim of unfair dismissal or discrimination.

Apart from the fact that a failure to follow the Code will give rise to an uplift in compensation, the main area where the Code is most likely to impact (assuming it is introduced in its current form) is where the proposed termination and re-engagement involves fewer than 20 employees (and the statutory duty to collectively consult with trade union representatives is not triggered). In those circumstances, the Code will impose new obligations to consult which the institution would not previously have faced.