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UK government proposes statutory dismissal and re-engagement code

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A draft code of practice on the procedure to be followed when employees in England, Wales or Scotland are dismissed and then re-engaged by the same employer on new terms – so-called ‘fire and re-hire’ practices – has been published for consultation by the UK government.

The draft code, published for consultation by the Department for Business, Energy & Industrial Strategy (BEIS), sets out employers’ responsibilities when seeking to change terms and conditions of employment, including information and consultation provisions. Whilst it is detailed and comprehensive, it “really does not change the existing position”, and “could simply result in an extension of how long it takes to successfully conclude lawful dismissal and re-engagement projects”, according to employment law experts at Pinsent Masons.

The code recognises that dismissal and re-engagement is a lawful strategy  for changing employee terms and conditions where there is a real business need to do so. However, it also emphasises that employers should first take all reasonable steps to avoid dismissals, according to employment law expert Jonathan Coley.

“The current thinking – that employers should firstly take all reasonable steps to avoid dismissal – really reiterates the case law, and how a tribunal would approach a case to see whether a dismissal in these circumstances is fair or not,” said Coley.

“The final code of practice will have statutory weight, so a tribunal would be required to take it into account – and would have the power to increase any compensation awarded to the employee by up to 25% for an employer’s unreasonable failure to comply or, indeed, reduce compensation by the same percentage where the employee has unreasonably failed to comply,” he said.

“The real challenge, though, is that the code recognises that the employer should be transparent at an early stage that it will drive through the change through dismissal and re-engagement but states that should not be used as a ‘threat in negotiations’. The reality is though as soon as an employer confirms that it will consider dismissal and re-engagement the trade union are likely to perceive this as a threat,” he said.

The code reminds employers that where the employees do not agree to a change to their terms and conditions, before implementation, the employer must be able to show that it has reconsidered its business strategy; fully re-assessed the risks and impacts on employees; and considered whether any alternative will allow the business to achieve its strategic objectives. The code also reminds employers to look at the strategy from a diversity and inclusion perspective.

The code does not prescribe a fixed time period for the employee information and consultation exercise. However, there is likely to be crossover with employers’ other collective information and consultation obligations, including those applying to redundancy and collective dismissal processes and agreements entered into with trade unions and employee representative bodies, said Coley.

“For example, the code does not really answer fully the tension between needing to serve a notice before a final decision is made in respect of collective redundancy consultation whilst acknowledging that employers should not ‘use threats of dismissal to put undue pressure on employees to accept new terms, instead of seeking to find an agreed solution’. If a notice is served too late so as not to be seen to be threatening it could in itself lead to criticism that any consultation under the collective consultation requirements would be meaningless. That could expose employers to a large potential liability,” he said.

The new code will be applicable where new employment terms and conditions are being proposed for existing roles, and the employer envisages it may be required to dismiss employees and offer re-engagement on new terms or offer the new terms to new employees performing the same roles. There is no minimum number of anticipated dismissals before which the code would apply, however it will not apply in genuine redundancy scenarios, as defined by the 1996 Employment Rights Act.

Employers are also reminded of their obligations around collective bargaining in the draft code, including their need to take care that any discussions directly with employees rather than their recognised trade union are not an “inducement” to bypass collective bargaining. This, said Coley, was an important reminder in the context of the UK Supreme Court’s decision in Kostal v Dunkley in November 2021.

The Kostal case confirmed that section 145B of the 1992 Trade Union and Labour Relations (Consolidation) Act does not give trade unions the power to veto direct offers to change their employment terms and conditions made to their members by their employers. However, the employer must follow and exhaust the trade union’s collective bargaining process before they can make any such direct offering. Strict penalties apply to breaches of section 145B.

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