The Acas Code of Practice on Dismissal and Re-engagement (Code) came into force on 18 July. However, in its current form, it is at odds with the new Labour government's stance as set out in its pre-election manifesto and the King's Speech. The Secretary of State for Business and Trade has now confirmed that the Labour government plans to replace the Code with a strengthened one to "put an end to these practices".  

This issue is also making its way through the courts. USDAW, the shop workers union brought a case against Tesco in which the union challenged Tesco's decision to dismiss and rehire on behalf of around 43 employees who refused to give up their retained pay incentive payment. The High Court found that employees were entitled to such pay as "permanent" so for as long as employees were employed in that role and granted the union an injunction to prevent Tesco from dismissing the employees by implying a term into the contract that Tesco could not exercise its usual right to terminate the operatives’ employment to withdraw the right to retained pay. The Court of Appeal disagreed. It held that such pay was only "permanent" for as long as the contract subsisted, and that Tesco could lawfully dismiss employees on such contracts and re-engage them on different terms. The Supreme Court heard the employees' appeal in April of this year and we are waiting for its decision to be published.

For now, employers will need to consider Code and apply it to all relevant proposals put to employees on or after 18 July 2024. We commented on the new Code earlier this year and draw out some key points below. 

The 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 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. There is an obligation on employers that dismissal and re-engagement should only be used as a last resort.

Some key points

• Consultation under the 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. There is no minimum period for consultation.
• The Code will not apply where an employer is only envisaging making employees redundant, but where both redundancy and dismissal and re-engagement is a possible outcome for the same employees, it will apply.
• The Code now states that employers should contact Acas before raising the prospect of dismissal and re-engagement, rather than later (as previously suggested in the draft code) if they were unable to reach agreement with the employees or their representatives.
• The revised Code advises employers to provide information "as early as reasonably possible" so that this can enable "meaningful" consultation and allow the parties to reflect and explore options and provide solutions. Employers should also share as much information regarding the proposals as "reasonably possible" and provide for employees to ask questions and make counter proposals.
• While the Code seeks to deter employers from using threats of dismissal during negotiations to put pressure on employees to accept new terms; following consultation, dismissal and re-engagement is still an option for an employer.
• The 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.

Last thoughts

The Code of Practice emerged from the controversy surrounding P&O failing to consult and dismissing about 800 employees in 2022 (although this Code does not directly impact on that redundancy scenario as there was no "rehire"). While in the then Conservative Government's view that "the Code strikes the right balance between protecting employees who are subject to dismissal and re-engagement practices, whilst retaining business flexibility to change terms and conditions" as explained above, we can expect to see a change in approach from Labour. 

For now, in its current form, the Code will certainly require businesses of all sizes to reflect on "fire and re-hire practices" where the prospect of dismissal and re-engagement has been raised by the employer with either the employee and/or their representatives on or after 18 July and factor in one or more consultation processes (depending on whether collective consultation is also engaged), as well as informing Acas before taking action. 
Given the sanctions for non-compliance, and the possibility of an uplift in compensation for failure to comply with the Code it will certainly give employers, particularly perhaps smaller ones with fewer resources, pause for thought when considering business decisions which involve possible dismissal and re-engagement of staff on fresh terms.