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The UK Government to introduce new statutory code on the practice of ‘fire and rehire’

April 01, 2022

The Labour Markets minister, Paul Scully, has recently announced a new statutory code on the practice of ‘fire and rehire’.

The code aims to also clamp down on controversial tactics used by unscrupulous employers who fail to engage in meaningful consultations with employees.

The practice of ‘fire and rehire’ refers to when an employer dismisses a worker and rehires them on new, less-favourable terms. This often takes place where a company is in financial difficulties or looking to cut costs.

In November 2021, ACAS had published guidance for employers who are considering making changes to employment contracts, making clear that the tactic of firing and rehiring is a last resort, only to be used where there have been reasonable attempts to reach agreement through full consultation.

The press release from the UK government states that the UK government “has always been clear that using fire and rehire as a negotiating tactic is completely unacceptable, and […] expect companies to treat their employees fairly”.

However, in light of the disgraceful actions of P&O Ferries in sacking 800 workers on the spot without prior consultation, the government recognises the need for greater clarity for employers.

The new Statutory Code of Practice will detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms.

Uplift if unreasonable failure to comply with the Code

The code will include practical steps that employers should follow. A court or Employment Tribunal will take the code into account when considering relevant cases, including unfair dismissal. The courts will have the power to apply an uplift of up to 25% of an employee’s compensation if an employer unreasonably fails to comply with the Code where it applies.

What does the Government expect employers to do?

Labour Markets Minister Paul Scully said the government: “expect[s] companies to treat their employees fairly – and whilst the vast majority comply with the law – today [the government is] going further to stand up for workers against those that flagrantly disregard it.”

Private Members bill from 2020

Employment lawyers may recall that back in June 2020, Gavin Newlands (MP from the Scottish National Party), introduced a Private Member’s Bill called the Employment (Dismissal and Re-Employment) Bill. The purpose of that bill went further than that currently suggested by the Labour Markets minister. The purpose of that draft law was to “Prohibit employers dismissing employees and subsequently re-employing them for the purpose of diminishing the terms and conditions of employment; and for connected purposes”.

To put that into effect, Mr Newlands suggested a modest amendment to the Employment Rights Act 1996 – specifically adding a new section 105A. That bill had its first reading and then disappeared into the draft legislation wilderness, and never to be spoken of again. It seems that the P&O debacle has acted as a catalyst for change and whilst the proposal does not go as far as Mr Newlands proposed, it does serve to emphasise the importance of planning for employee consultations.

The new Statutory Code of Practice will act as a deterrent, particularly to those employers seeking to use the threat of fire and rehire as a negotiation tactic.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© Miller Rosenfalck LLP, April 2022

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