A re-statement of best practice?

The code of practice on dismissal and re-engagement came into force in July. Is the code at best a useful aide-mémoire for employers with a potential educative effect for employees and smaller employers without HR and legal advice backing? Or perhaps the code’s terms have the potential for more far-reaching and potentially unintended consequences?

The code of practice on dismissal and re-engagement came into force on 18th July 2024. The code does not prevent employers outright from making changes to terms and conditions of employment through dismissal and re-engagement (‘fire and rehire’ practices), but affected employees are protected insofar as there are more explicit obligations on employers to share information, consult and re-examine their proposals in light of employee feedback.

It remains to be seen, however, exactly how long the code will remain in force. The new Government has outlined in its briefing notes to the King’s Speech, its intention to introduce a new Employment Rights Bill within the first 100 days in office, which will implement policies set out in its Plan to Make Work Pay. This Plan, in turn, is said in the briefing notes (p20) to include a commitment to “ending the scourges of ‘Fire and Rehire’ and ‘Fire and Replace’ by reforming the law to provide effective remedies and replacing the previous Government’s inadequate statutory code”. In the meantime, however, the code – as passed by Parliament – is in force and employers (and employees) must pay heed to it.

The code applies when an employer envisages making changes to employees’ contractual terms through dismissal and re-engagement. Once triggered, the code’s requirements are not particularly onerous. Employers are to give employees “as much information […] as reasonably possible” to support employees to understand the rationale for the changes to terms which are proposed, ask questions and present counter proposals. Parties are to consult on the changes, engaging “openly and in good faith” and considering each other’s respective positions. Employers, meanwhile, are to re-examine their proposals in light of employee representations. If agreement cannot be reached and the employer proposes to dismiss affected employees and offer re-engagement on updated terms, the code outlines actions that the employer should consider to mitigate the negative impact on employees.

Failure to comply with the code does not itself give rise to any standalone cause of action. An employment tribunal or court, however, must take failure to comply into account where the provisions are relevant to any proceedings before it, as would be the case, for example, in a complaint of unfair dismissal arising from a fire and rehire practice. An employment tribunal or court can also uplift compensation awarded in certain proceedings (listed in Schedule A2 to the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA)) by up to 25% if the proceedings concern a matter to which the code applies, and the employer has unreasonably failed to comply with it. There is also provision permitting an employment tribunal or court to reduce an award by up to 25% where the failure can be attributed to the employee.

The previous Government, in response to feedback received through its consultative exercise on a draft version of the Code, indicated its intention to amend TULRCA so that the uplift for failure to follow the code would, in relevant circumstances, apply to protective awards made against an employer for failure to comply with the obligation to consult collectively when proposing to dismiss and re-engage 20 or more employees in a 90-day period. Employers embarking on large-scale fire and rehire exercises with the consequent potential for multiple unfair dismissal and protective awards would likely have been incentivised to follow the code had this change to TULRCA been made. It would seem, however, that the proposal to apply the 25% uplift to protective awards has now been dropped, with the draft Order amending Schedule 2A of TULRCA having been withdrawn from the House of Lords on 17th July 2024.

For many employers, the code may appear to simply restate best practice to which they have adhered (or been advised to adhere) in the past. There are, however, a couple of aspects of the code with the potential for greater impact.

First, is the statement in the code that dismissal and re-engagement ought to be treated by the employer as “the last resort”. This phrase is not, of course, a precise legal term, but it implies there are to be no alternatives to the employer adopting this course of action. While this sends a strong message to employers, it appears to go further than that which has been previously understood to be legally prohibited (a point recorded in the Government’s response to the consultation (at p9) as being made by some of the respondents to its consultation on a draft of the code). To avoid a finding of unfair dismissal in fire and rehire cases, an employer – at least in the past – had only to demonstrate that it was within “the band of reasonable responses” to regard its desire to change terms as a sufficient reason for dismissal in all the circumstances. It is therefore unclear whether the code purports to modify the standard of reasonableness for unfair dismissal cases arising from fire and rehire practices. The lack of clarity around the wording could give rise to it now being deemed to fall outwith the band of reasonable responses to dismiss in circumstances where dismissal is not “the last resort”. This apparent conflict between the legal obligations on employers not to dismiss employees unfairly and the requirements of the code to dismiss only as “a last resort” is likely to be the source of future litigation while the current iteration of the code remains in force.

Second, is the recommendation that employers contact the Advisory, Conciliation and Arbitration Service (ACAS) if they envisage opting for dismissal and re-engagement to implement updated terms and conditions. It is unclear what role ACAS will adopt in response. Will ACAS limit its involvement to the provision of advice to the employer, or will ACAS adopt a more far-reaching role by offering to mediate the dispute over terms? Clearly the latter has more potential for alleviating industrial conflict, though resource limitations may well inhibit the assistance that ACAS can realistically offer.

On first look, the code appears at best to be a useful aide-mémoire for employers, with a potential educative effect for employees and smaller employers without HR and legal advice backing. On closer inspection, the code’s terms have the potential for more far-reaching (and unintended?) consequences – for example, the role of ACAS in mediating industrial disputes and conflict; and the possible implications for the standard of reasonableness in unfair dismissal complaints, when considering the requirement that dismissal and re-engagement be a last resort. Of particular interest in the coming months will be any announcement from the new Government on its proposals for further change in this area.

Written by Catriona Cannon and Paman Singh on behalf of the Law Society of Scotland Employment Law Sub-Committee.