UK: statutory code on dismissal and re-engagement to change terms of employment expected to come into force 18 July 2024

Update 30 May 2024: the statutory 'fire and re-hire' Code will come into force on 18 July 2024 (see here).  However, the draft order adding protective awards to the list of claims for which a 25% adjustment to compensation can be made for breach (see below) was not approved before the dissolution of Parliament at the end of May and therefore will not come into force at the same time. 

The Government has published a revised draft of its proposed statutory code on dismissal and re-engagement, following consultation on an earlier draft last year.  It now awaits parliamentary approval, and the Government expects to bring it into force 'later in the Summer'.  The draft has been extensively re-ordered and duplication removed in response to criticism of the earlier draft (see here).  There are also some more significant changes for employers to note, including an obligation to contact Acas before raising the prospect of dismissal and re-engagement.

As in the original draft, the Code will not apply where an employer is only considering statutory redundancies (where the employer’s need for employees to do a particular type of work or at a particular place has reduced).  However, if the employer is considering making changes to terms of employment (including as one of several alternative options, including statutory redundancies, in respect of the same employees) and it envisages that, if the changes are not agreed, it might opt for dismissal and re-engagement, the Code will apply for as long as that possibility is on the table.  Where the Code applies, employers will need to do more by way of information and consultation than currently:

• The Code will impose collective information and consultation obligations for the first time in smaller-scale exercises. Currently, there is only an obligation to inform and consult representatives where at least 20 dismissals are proposed at a single establishment within a 90 day period (breach of which can lead to a protective award of up to 90 days' actual pay per relevant employee).  There is no minimum number of affected employees required for the draft Code to apply.
• Where the existing collective redundancy consultation rules apply, the draft Code obligations will mean starting the process earlier than is currently required and will increase the importance of keeping thorough notes of the thought processes and discussions involved.
• The revised draft Code now makes clear that the first steps are information-sharing and consultation, which should be ongoing processes.  Information should be provided as early as reasonably possible and include as much information regarding the proposals as reasonably possible, ideally in writing. The employer should consider providing information as to the nature of the proposed changes, to whom they will apply, the business reasons for them, the anticipated timing and its rationale, what other options have been considered, and proposed next steps. If an employer reasonably concludes that certain information is too commercially sensitive or confidential to disclose, it should explain why as fully as reasonably possible. Consultation should continue for as long as reasonably possible in good faith, with a view to reaching an agreed outcome.
• The revised draft Code clarifies that information and consultation should be with a recognised trade union where there is one and, for employees not covered by a union, it should be with whichever is appropriate of: an existing employee body, representatives chosen for the purpose, or each employee individually (depending on what is reasonable in the circumstances and whether any other legal obligations prescribe a particular choice).
• The revised draft Code provides that once the employer forms an intention to dismiss and re-engage in the event that an agreed outcome cannot be reached, it should be clear about this - but it must not raise this possibility "unreasonably early" (given that this can be detrimental to attempts to reach an agreed outcome) and should contact Acas for advice before doing so.  The Code continues to note that a threat of dismissal, where this is not actually envisaged, should not be used as a negotiating tactic.
• The original draft set out obligations on employers to re-examine their proposals and business strategy as a first step.  This has now been changed to a duty to re-examine just the proposals after information and consultation and once it is clear that proposed changes will not be agreed. This will involve considering the employee feedback, the employer's objectives, the negative consequences of imposing the changes, any discriminatory impact, and whether there are reasonable alternatives to achieve the objectives. The employer need only revisit its analysis again if there is a material change in circumstances or in response to material results of the consultations.
• The original draft provided that, if more than one change is being implemented, the employer should consider phasing them over a longer period. The revised version merely notes that employers may wish to consider phasing the changes.
• The Code no longer suggests continuing to engage in discussions to reach agreement on the new terms that have been imposed (given that this contradicts the idea that dismissal should only be used as a last resort).  Instead, the Code states that it is good practice to invite feedback about the changes and possible mitigation of negative impacts.  It also notes that employers might commit to reviewing the changes at a fixed point in the future, perhaps with a view to reconsidering whether the changes are still necessary.
• There will be no direct claim for breach of the Code, but tribunals will be required to take the Code into account where relevant. The compensation for certain tribunal claims, including unfair dismissal, can be adjusted by up to 25% for breach (although this would apply before the statutory cap on compensatory awards for unfair dismissal).  The revised Code now notes the potential for an uplift where claims are made to the Central Arbitration Committee (collective bargaining claims made by recognised trade unions) in addition to tribunal and court claims.
• The responses to the consultation on the original draft flagged the fact that the 25% adjustment would not apply to claims for protective awards for breach of the collective redundancy consultation rules.  The Government has confirmed in the response document that it intends to make secondary legislation to add protective awards (which are for up to 90 days' actual (uncapped) pay per affected employee) to the list of claims to which the 25% adjustment can apply.

The revised draft Code and consultation response are available here.

In contrast, the Labour Party have pledged to ban "firing and re-hiring" within their first 100 days should they win the General Election, although no detailed proposals have been provided.  A Private Members' Bill recently introduced to the House of Lords by a Labour peer may provide an indication of the thinking.  This envisages a legal obligation to inform and consult for employers with 50 or more employees where there is a real threat to continued employment and the employer is considering dismissing or changing the terms of at least 15 employees;  in certain cases of non-compliance, variations to terms and dismissals may be rendered void or employees can seek just and equitable compensation, and the use of contractual variation clauses to unilaterally make terms less favourable for an employee would be void.  The Bill also provides enhanced unfair dismissal rights (including that an employer cannot argue that it had "some other substantial reason" for dismissing an employee for refusing a contractual variation, and the two-year qualifying period will not apply), with the right to reinstatement or re-engagement save where insolvency is likely within 3 months.  The Bill would also make it easier for a trade union to organise industrial action in cases of threatened fire and rehire. The House of Lords library briefing here and debate here provides further details.