In late January 2023, the UK Government published a draft Code of Practice on Dismissal and Re-engagement. The trigger for the draft Code was the increased attention on the use of dismissal and re-engagement (also known as “fire and rehire”) by employers during the COVID-19 pandemic. The draft Code follows and will supersede Acas’ guidance on fire and rehire practices.

The draft Code is open for consultation until April 18, 2023. The Government has said that it will publish its response to points raised in the consultation before finalising the Code and there is no confirmed date of when the Code will begin to apply.

When would the Code apply?

The draft Code would apply where:

• An employer considers that it wants to make changes to its employees’ contracts of employment.
• 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.

What is the purpose of the Code?

The draft Code states that its purpose is “to ensure that an employer takes all reasonable steps to explore alternatives to dismissal.” The draft Code does not apply to dismissals by reason of redundancy and is not a replacement for existing legislative provisions relating to collective consultation in redundancy scenarios. Rather, the draft Code has been designed to provide guidance to employers when considering dismissing employees and re-engaging them (or employing new employees) on new terms.

Whilst the draft Code is clear that dismissal and re-engagement should only be used as a last resort by employers, the Government has expressly rejected calls to ban the fire and rehire practice. The consultation document published alongside the Code makes it clear that dismissal and re-engagement “can play a valid role as businesses may need the flexibility to use this option to save as many jobs as possible.” The Code is clear that dismissal and re-engagement remains a legitimate legal option for employers in appropriate circumstances where the right steps are taken.

What steps does the Code specify?

The draft Code sets out the following steps that employers should follow when proposing changes to employees’ terms and conditions, both where there is agreement and where there is disagreement on the proposed changes:

1. Consult with employees or representatives about proposed changes to employment terms and conditions (ensuring compliance with legal information and consultation obligations outside of the Code).
2. If changes are agreed: put news terms in writing and communicate clearly with employees.
3. If changes are not agreed:
   
   1. Employer can consider unliterally imposing new terms but should be aware of the high risks with this approach, and should consider consulting with employees or representatives
   2. Employer may decide to dismiss and re-engage on new terms
      
      1. Reconsider whether changes are necessary
      2. Consider if it is a redundancy scenario, and if so, comply with relevant obligations (outside scope of the Code)
      3. Give as much notice as possible of dismissals
      4. Set out new terms in writing
      5. Re-engage employees as soon as possible

How might the Code impact employers?

Although the Code is still in draft form, employers should be prepared for it to take effect.

Many employers will already be adhering to the points set out in the draft Code. Nevertheless, it serves as a reminder of the steps that employers are expected to take when considering dismissing and re-engaging employees and, significantly, introduces the possibility of greater compensation for employees where an employer fails to follow the Code if an employee brings one of the employment tribunal claims listed in Schedule A2 to Trade Union and Labour Relations (Consolidation) Act 1992 (which includes unfair dismissal).

While the Code would not be legally binding, employment tribunals will have the power to increase any compensation awarded to an employee by up to 25% where the employer unreasonably fails to comply with its guidance (an employment tribunal can also decrease any award by up to 25%, where it is the employee who has unreasonably failed to comply with the Code). Additionally, a court or employment tribunal must take any relevant provisions of the Code into account when making its judgment. It will therefore be important for employers to follow the procedure set out in the Code or take the increased award into account when making business decisions.

Next steps

Employers that would like to make a submission as part of consultation on the draft Code must do so by April 18, 2023, either online or by email.