The Department for Business and Trade has launched a consultation on its new Code of Practice around situations where an employer dismisses a worker with a view to employing them again with different terms and conditions. Although the draft Code provides sensible guidance, the final version of the Code should ultimately do more to protect workers when employers unilaterally try to change their contracts.

Increased scrutiny of fire and rehire practices has led to a draft Code of Practice

Recent years have seen a concerning rise in the use of fire and rehire. In 2021, British Gas dismissed 500 engineers who were unwilling to accept lower pay rates and unsocial hours, and rehired 7,000 engineers who accepted their jobs against these reduced terms. Last year, P&O Ferries fired 800 workers without notice and replaced them with agency staff on less favourable terms. The latter isn’t technically a fire and rehire by definition, as the intention was not to retain the same workforce on different terms, but to replace them wholesale. Regardless, these recent events have led to increased scrutiny of employers’ rights to change terms and conditions, and particularly the use of ‘fire and rehire’ practices.

On 24 January this year, the Department for Business and Trade recognised that fire and rehire is increasingly becoming an issue and published a consultation, seeking to develop guidance to clarify the responsibilities of employers when seeking to change employment terms and conditions. The stated aim of the Code of Practice is to provide guidance on avoiding, managing and resolving conflicts that may arise from changes in terms and conditions. Following consultation with the public, a final Code will gain Statutory standing. This means that the law itself won’t change, it merely explains already existing obligations.

What the Code will and will not do

The Code will not make firing and rehiring workers an illegal practice in the UK. Rather, it offers recommendations around how employers should behave when they are considering changing workers’ terms and conditions. Failure to comply with the code, in the worst case, may lead to a reduction in the award if a case should be tried in court or tribunal.

However, this will be useful to only a very small minority of all workers who may be dismissed or threatened with dismissal, because many workers don’t have the resources to bring cases to court, and for those who do, cases often end in dismissal, withdrawal, or conciliation. Furthermore, reductions to the potential monetary awards employers could receive through tribunal are unlikely to inspire desired behaviours when we take into account that tribunal awards are typically low, and that money is rarely the priority.

There is a fundamental imbalance of power between employers and employees when it comes to conflict resolution in the UK, and the proposed Code of Practice needs strengthening in order to address this.

The Code will have debatable impact on use of “undue pressure” on employees

The Code states that employers should not use the threat of dismissal to put “undue pressure” on employees to accept new terms and conditions. However, the Code offers little protection from this.

The draft Code reiterates the need for employers to consult and share information with employees regardless of the number of staff affected by a change in terms and conditions and stipulates that dismissal should be considered a last resort.

The emphasis on consultation is undoubtedly sensible. Our own work has shown many times that active consultation between employers and employees is important for the individuals involved as well as to support wider business goals.

However, the draft Code currently presents consultation as an afterthought - it is proposed as the sixth step in the process of considering new terms and conditions. Surely, if dismissal is genuinely a last resort, consultation with staff to explore all available options should take place first. Only following that, should the decision to change terms and conditions be considered (which is now step 1).

Employers already had a legal duty to inform and consult with trade unions around fire and rehire of more than 20 employees under the Trade Union and Labour Relations (Consolidation) Act 1992. In the case of P&O Ferries, the company decided to forego this in violation of the law, which was muddled in this case as the company was incorporated abroad.

We have long known that the UK economy is characterised by a large number of severely insecure jobs. However, the practice of fire and rehire also puts ‘secure’ jobs at risk by allowing forced reductions in terms and conditions to be met with very few consequences.

More scrutiny is needed of what constitutes actual business needs around fire and rehire

Ultimately, the draft statutory Code must do more to address the imbalance in power between employers and employees, and prevent a hollowing out of secure jobs. It should include a requirement for employers to provide comprehensive justification for proposing dismissal and re-engagement. Although it may be important for organisations to be able to flexibly adapt to new, challenging circumstances, early evidence suggests fire and rehire is being used beyond where it is the only viable option to stay afloat: analysis from the Observer found that among 13 companies that had dismissed and rehired staff, nine had maintained good profit margins, and that some had raised executive pay.

With widespread industrial disputes across a range of sectors this winter, Government must do more to achieve the draft Code’s stated aim of mitigating the impact of conflicts between employers and employees, first and foremost by curbing employment practices that damage these relationships.

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