A new statutory code of practice on dismissal and re-engagement, or fire and rehire, came into force last July, setting out practical guidance for employers and employees.

The term refers to the practice of making employees redundant and then rehiring them with reduced terms and conditions.

The code is applicable where the prospect of dismissal and re-engagement was raised by the employer from 18 July 2024 and its purpose is to “ensure that an employer takes all reasonable steps to explore alternatives to dismissal and engages in meaningful consultation with a view to reaching an agreed outcome with employees and their representatives”.

It also seeks to ensure that an employer “does not raise the prospect of dismissal unreasonably early or put undue pressure on employees by threatening dismissal where this is not, in fact, envisaged”.

While the code clarifies that a failure to follow it does not make an organisation liable to proceedings, if an employee brings their case to an employment tribunal, then it can increase any award it makes by up to 25 per cent if the employer has failed to comply.

When can an employer opt to use fire and rehire?

The code said the option should be treated as a “last resort”; however, employers may use dismissal and re-engagement if it has “participated in a thorough and open information-sharing and consultation process, as part of which it has genuinely considered any reasonable alternative proposals”.

An employer must have:

  • a potentially fair reason for dismissal;
  • acted reasonably in the circumstances in treating that reason as a sufficient reason for dismissal; and
  • followed a fair dismissal procedure

However, the code warned of the negative consequences of the practice, including legal and reputational risks for the employer, potential harm to employees’ interests along with damage to the employer’s relationship with its employees, bringing risk of disengagement and industrial conflict.

It also stated that employers must give “as much notice and reasonably practicable of the dismissal” and must comply with whichever is greater of the employees’ contractual or statutory notice period as a minimum. They should also re-engage the employee as soon as reasonably practicable.

Businesses should consider offering employees more time to make arrangements, which will help them to “accommodate the changes”, such as adapting their childcare arrangements or planning new journeys to work where their working hours would be different.

Introducing contractual changes

Companies should share “as much information regarding the proposals as reasonably possible” to enable employees and their representatives to understand the reasons for the proposed contractual changes and be able to ask questions and make counter proposals, the code said. They should tell employees:

  • what the proposed changes are, including what the proposed new or revised terms will look like
  • who will be affected by the proposed changes
  • the business reasons for the proposed changes
  • the anticipated timings for the introduction of the proposed changes and the reasons for those
  • any other options that have been considered; and
  • the proposed next steps.

The code also emphasised the importance of the consultation process, stating: “Consultation is not a question of only following the right procedure. To enable meaningful consultation, parties should engage with each other openly and in good faith. They should genuinely consider the points that are put forward.”

The code continued: “Once it has become clear to the employer that employees or their representatives do not agree to some or all of the contractual changes that it has proposed, but the employer considers that it still needs to implement the changes, the employer should re-examine its proposals.”

Businesses should consider whether its proposals could have a greater impact on some employees than others – for example, under the Equality Act 2010 – or whether there were any “reasonable alternative ways” of achieving their objectives.

On raising the prospect of dismissal and re-engagement, the code said employers should be clear about it but “not do so unreasonably early” because of the potential detrimental impact on attempts to reach an agreed outcome.

What does the code mean for employers?

Many are critical of the code, arguing that it does not go far enough as it remains advisory, rather than legally binding. While it provides a framework for good practice and can influence tribunal decisions, it doesn’t outright ban fire and rehire tactics.

However, the key effect is that the code of practice significantly raises the bar for employers considering dismissal and re-engagement, emphasising the importance of genuine consultation and exploration of alternatives.  Employers should carefully consider and document the assessment they make of their need to change terms and conditions and ensure they have a sound business rationale.

The one notable new development under the code is for employers to contact ACAS for advice before raising the prospect of ‘fire and rehire’ with their workforce.

Organisations will also need to adapt to any changes due to be implemented by the new government: They could change the content of the code, imposing more obligations on employers or limiting the number of circumstances in which dismissal and re-engagement can be used. They could also strengthen the remedies for failures to follow the code. We will hopefully have clarity on this in the next few months.

 As always if you have any questions regarding the above or if you’d like to discuss these or any other points further please give one of our expert team a call or get in touch via our Contact Form.