In the wake of the government requesting Acas to look at practices around changing contractual terms and conditions, and the controversy surrounding P&O failing to consult and dismissing about 800 employees last year, the government has published a draft statutory Code on Dismissal and Re-engagement (Code). The consultation will end on 18 April 2023 and the finalised Code will be brought into force when Parliamentary time allows.

The draft Code provides practical guidance to employers and employees in situations where an employer considers that it wants to make changes to its employees' employment contracts which, if not agreed, may result in dismissals and potentially an offer to employees of re-employment on those new terms. Alternatively, an employer may dismiss and then engage new employees to perform the relevant roles on the new terms. To avoid disputes between employers, employees and trade unions the purpose of the draft Code is to ensure that the employer takes steps to explore alternatives to dismissal. It should provide information to and engage in meaningful consultation with trade unions, other employee representatives or individual employees in good faith and avoid using threats of dismissal to put undue pressure on employees to accept new terms. 

Some key points

• Consultation under the draft Code would be required regardless of the numbers of employees who might be affected by the employer's proposals. This would create a new obligation where fewer than 20 employees are affected.

• This consultation is separate from and in addition to any contractual obligations or collective bargaining arrangements and information and consultation requirements required by law, for example where, currently, it is necessary to comply with collective redundancy obligations on a change to terms and conditions of employment.

• The draft Code does not apply to redundancy dismissals.

• The draft Code applies regardless of the business objectives pursued by the employer, or the nature of its reasons for seeking changes to its employee’s terms or conditions.

• While there are no direct penalties, whether the Code has been followed is admissible in evidence in court or employment tribunal proceedings. Mirroring the Acas Code of Practice on disciplinary and grievance procedures, a tribunal could uplift an award to an employee by up to 25%, if the employer has unreasonably failed to comply with the Code; or decrease any award by up to 25%, where it is the employee who has unreasonably failed to comply.

• The draft Code seeks to deter employers from using threats of dismissal during negotiations to put pressure on employees to accept new terms. Although, following consultation, dismissal and re-engagement is still an option for an employer.

Information and consultation

The consultation on the draft Code lists a range of reasons such as economic, business, financial, organisational or human resource reasons and why changes are needed. Such proposals should be kept under review throughout the consultation process, and alternative ways of achieving objectives should be considered.  The negative consequences of acting unilaterally are explored such as loss of reputation, strikes, legal claims or discriminatory impact. 

In addition to complying with any statutory information obligations, such as for collective redundancy, the Code also suggests that information such as what the proposals are, who they might affect, why they are needed and the timeframe envisaged should be provided as early as possible to trade unions, employee representatives and/or individual employees and remain an ongoing requirement of the process. The draft Code considers the timing of the consultation process, and that the longer it continues the more thorough an exploration of different options and resolution without involving dismissal.

Dismissal and re-engagement

The draft Code recognises that following the consultation process an employer may still conclude that it needs to change contractual terms and, as a last resort, decide to dismiss the employees and offer to re-engage them on the new terms. It would then need to assess whether the impact would be greater on those with particular protected characteristics and, for example, provide plenty of notice if there is a change in hours, or have a phased introduction of changes where implementing more than one new term. Not only would the Code apply to where existing employees are offered new terms, but also when an employer engages new employees on the new terms. 

The draft Code does not go as far as some would have liked; the government rejected proposals to ban "fire and re-hire" practices altogether. It will be easier perhaps for larger organisations to follow, which already are familiar with other forms of collective information and consultation. Smaller employers, with fewer resources, may find the procedures more challenging. However, given the possibility of an uplift in compensation for failure to adhere to the consultation requirements, organisations will have to factor in both the additional procedural safeguards which would be in place before a dismissal to dismiss and re-engage is taken, and the potential increased financial costs involved if they failed to do so.