Feb 2023
What is draft Code of Practice?
The government has published for consultation a draft Code of Practice, prepared by ACAS, relating to the circumstances in which an employer contemplates dismissing employees and offering to re-engage them (or new replacement employees) on different contractual terms. This practice has occurred in cases in which an employer has wanted to change the existing terms and conditions of employees (often to save costs or to bring about greater flexibility in working practices) and has believed that it will not be able to obtain agreement to the desired changes, or will not be able to do so within an acceptable time scale.
The draft Code will not impose legally binding obligations. However, Employment Tribunals will be required to have regard to the Code when considering cases to which the Code applies and will have the power to increase the compensation payable to employees by up to 25% (for claims such as unfair dismissal, for example) if the Tribunal considers that the employer has failed to comply with the Code. Compensation can be reduced by up to 25% if there is non-compliance with the Code on the part of the employee.
Preparation of the draft Code seems to have been prompted principally by the case in 2020 involving P&O Ferries which dismissed several hundred employees, apparently without any form of prior consultation, and offered to re-engage people on different terms. ACAS found that the practice of “firing and re-hiring” had become more prevalent during the pandemic.
The draft Code may change as a result of the consultation process which continues until 18 April 2023. No date has been set for the Code in its final form to be brought into effect.
The Code acknowledges that an employer may have legitimate business reasons for wishing to change its employees’ terms and conditions. It reminds employers of the adverse consequences (in legal, industrial relations, reputational and financial terms) which can flow from the practice of “firing and re-hiring”. It points out that even if a dismissed employee accepts the employer’s terms for re-engagement, a claim for unfair dismissal (and possibly unlawful discrimination, depending on the facts) can still be pursued. The re-engagement does not alter the fact that the employee has been dismissed. The Code recommends employers to regard “firing and re-hiring” as a last resort and to go to great lengths to seek to reach agreement on contractual changes by consultation either with recognised trade unions or directly with employees.
The consultative practices recommended by the Code in its draft form appear likely to impose considerable burdens on employers, especially smaller employers, and particularly in situations where urgent action may be required to try to rescue a business from a financially precarious position. It advocates a sharing of information about the reasons why proposed changes in terms and conditions are necessary and exploration of alternative ways of enabling the employer to meet its business objectives. It expressly warns against the use of threats of dismissal purely as a negotiating tactic to put pressure on employees to accept revised terms and conditions. The Code applies regardless of the number of employees affected by the employer’s plans. In its present form the Code provides extensive scope for an Employment Tribunal to find reasons for saying that there has been a failure to comply. It will be interesting to see whether the provisions of the Code are modified as a result of the consultation process.
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