ACAS has published its report into the practice of dismissal and re-engagement. Commissioned by the Government, it was a fact-finding exercise amid concerns it was increasingly being used by employers as a result of the pressures caused by the COVID-19 pandemic. It contains views from a range of participants about their experiences on the use of the practice, commonly labelled ‘fire and rehire’. The evidence gathered was largely qualitative in nature, exploring participants' experiences and views on themes of interest to BEIS, including whether the practice is new, its apparent prevalence, the contexts in which it is used, and whether policy interventions may be needed to address the issue. Given the divergence of participants, not surprisingly it finds a divergence in views on whether the increase in the use of the practice seen over the past year has simply been the result of genuine business pressures caused by the pandemic or, as the trade unions see it, an opportunity to force through changes to employment terms. The views are equally mixed on whether the practice should be reformed, and if so, how. So let’s consider some of the issues raised by the report and get an employers’ perspective on this. I called Jon Coley, who is based at our Birmingham office and has been advising clients throughout the pandemic. I started by asking Jon what, exactly, is meant by term ‘dismissal and re-engagement’ in this context:
Jon Coley: “It’s the process by which employers have the ability to change terms and conditions of the contract of employment. If agreement cannot be reached with the trade unions, or with employees, in relation to change then the only way that the employer can change fundamental terms and conditions of a contract, in the absence of a variation clause in the contract, is to terminate the existing contract of employment and to offer employees re-engagement on new terms and conditions. Now, obviously, in the context of the pandemic employers have needed to change their working practices and have needed to look at the terms and conditions of employment of their employees in order to make sure that the business remains competitive, indeed, that the business survives and, indeed, that the business avoids significant job losses. Now, the consequences of all of that, of course, is that, in changing the terms and conditions of employment, there is a dismissal there. There is the dismissal of the existing contract and re-engagement on a new contract. Given the way that redundancy is defined in the legislation, that dismissal falls under the collective consultation section 188 regime. There is therefore an obligation, where an employer needs to dismiss more than 20 employees, for them to collectively consult. The question then arises, well if I know that I'm going to have to dismiss people, if agreement can't be reached on the terms and conditions, when is the appropriate time to serve my section 188 notice, and when is the appropriate time to put the union on notice that I may need to terminate and dismiss people in order to bring about the change which I'm driving? Now, I've been involved in situations, as I'm sure a number of my colleagues have, where actually the employer has decided to consult with the union about the changes to terms and conditions, to go through that at length, and then only when they fail to reach agreement do they then serve the section 188 notice at the end of the process. The danger with that is that the union will then turn around and say, well, this is the first time you've raised with us the possibility of any dismissal or re-engagement, you have served this notice too late in the process, and then they'll follow that up with a with a claim for failure to inform and consult because, they will say, well, what are you consulting about now? There is no way we can consult about ways of avoiding or mitigating redundancies because we've already completed the consultation about the changes in terms of conditions, so what are we consulting about going forwards? So, there is a very good argument to say that the employer should, as soon as it knows that agreement may not be possible, and the dismissals may be in the offing, that it has to serve that section 188 notice otherwise it exposes itself to a significant risk of a failure to inform and consult claim, which as we know, with its three months’ uncapped pay could be a significant liability for that employer to run with and a significant risk unless it serves a section 188 notice early enough in the process. Now, I know there has been criticism from the trade unions that employers are using it as a negotiating tactic, or a threat, but they're not in reality. I've not seen that, in my experience. All that employers are doing is attempting to comply with the law in relation to informing and consulting and, indeed, that's in the trade union’s interest very often because it means they get to know at the early stage where employer’s thinking is around the changes which it needs to introduce and, also, that they understand and early stage that actually if agreement can't be reached then dismissal is the only option. Now, if you don't have the option for the employer to dismiss and re-engage, you don't have the option of fine and rehire, then that effectively leaves a veto for the trade union and the employees, i.e. if they don't reach agreement, and the employer doesn't have the option to dismiss and re-engage, then the employer cannot change its terms and conditions. Well, that will be unacceptable from a commercial and employment perspective and all that would lead to is more corporate failures and higher levels of redundancies.”
Joe Glavina: “What protection do employees have in these circumstances, Jon?”
Jon Coley: “There’s a misunderstanding, Joe, out there already that there isn't any protection in place, and there absolutely is. Employees already have the protection from two perspectives. We've already spoken about the fact employers have to go through an information and consultation process, as they would do on collective redundancies, where there are 20 or more dismissals proposed but, beyond that, because there is a dismissal, any dismissal has to be fair in accordance with the current unfair dismissal legislation and there is authority out there that the employer needs a sound business reason, in order to dismiss and re-engage. You can't just do so on a whim, it has to have that sound business reason in order for the dismissal to be fair. So, there already is protection for employees, before the tribunals, if the employer doesn't follow a fair process or, alternatively, does not have that same business reason.”
Joe Glavina: “The Acas report suggests various ways the practice could be changed, including a change to the law. Can you see a change in the legislation at some point down the line?”
Jon Coley: “Obviously, the Acas report says they are looking at it and one of the options they discuss, for instance, is allowing tribunal Chair more discretion to investigate that sound business reason. I think that's a major policy shift, though, for the tribunals because tribunals over the years have always avoided wanting to substitute their own reason and wanting to get into the financial reasons as to why companies have taken decisions. I think for tribunal Chair to have to get involved in why appear a major PLC, say British Airways or somebody in the travel sector, has needed to change its terms and conditions I think would be a step too far and the law at the moment already has that protection in there in relation to following a fair process and just being able to demonstrate that there is a sound business reason, which has not, you know, effectively been made up on the spot. So, I think it will be very difficult for the government to introduce any further legislation in this area without removing the flexibility that businesses need in order to protect jobs, to make themselves sustainable and to make themselves competitive in the long term, and that is the real tension that there is in this area. One option would be to say that the section 188 notice maybe does not need to be served until the negotiations have concluded in relation to the changes to terms and conditions but that in itself, I suspect, the union's will not like because then they will not get the section 188 notice until much later in the process which may not inform their earlier discussions with the employer.”
Joe Glavina: “The report is based on the premise that this issue has come to the fore as a result of the pandemic. Is that how you see it?
Jon Coley: “I think it's worth also making the point, Joe, that although the Acas report says that employers have resorted to dismissal and re-engagement during the pandemic, it also recognises that they have done so in advance of the pandemic as well, and all that the pandemic has done, probably, is highlight the symptoms of the problem, that they need to change to be competitive and to survive going forwards. So, I think it's wrong to say that this has only come to the fore as a result of the pandemic. All it has done is emphasise to employers that need for change in order to be competitive and to survive to the other side and, let's face it, everybody has recognised the need to change and if your employees are not on that journey with you, and won't agree to the change that is necessary, then the only option available, unfortunately, is dismiss and re-engage when you do really have that sound business reason and need to drive through change to be competitive for the future.”
That Acas paper was published earlier this month and can be downloaded from the Acas website. We have put a link to it in the transcript of this programme. There is more to come because the Government has asked Acas to provide more detailed guidance on how and when termination and re-engagement should be used, and 'good practice' for employers. When that is published, later in the year, we will let you know.
- Link to Acas paper: Dismissal and re-engagement (fire-and-rehire): a fact-finding exercise