A FINE LINE
The Cost of Non-Compliance with Fire and Rehire Rules
As of 20 January 2025, Tribunals will have the power to increase compensation in “fire and rehire” cases by up to 25%. The new powers, related to failing to adhere to the recently introduced Code of Practice on Dismissal and Re-engagement (commonly referred to as the fire and re-hire Code) will come into force, mirroring powers employers will be familiar with for non-compliance with the ACAS Code of Practice on grievances and disciplinaries.
Employers should take note of these developments as they heighten the stakes for non-compliance. This article explores the Code, its rationale, and its impact, including the potential implications of broader government proposals to ban fire and re-hire practices entirely.
Summary of the New Code
The statutory Code of Practice on Dismissal and Re-engagement was introduced under section 203 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992). Notably, this was under the Conservative government and feels slightly behind the curve considering the new Labour governments plans for “fire and rehire” under the Employment Rights Bill (see more on this later in the article).
“If enacted, the ban would represent a more significant shift, effectively removing fire and re-hire as an option for employers. In its place, employers would need to rely on voluntary negotiations and other collaborative approaches to implement changes.”
The Code provides detailed guidance for employers considering changes to employee terms and conditions via dismissal and re-engagement, commonly referred to as fire and re-hire.
The Code emphasises the importance of meaningful consultation, transparency, and negotiation. Key provisions include:
Genuine Consultation: Employers must engage in meaningful and good-faith consultation with employees or their representatives before proposing changes to terms and conditions.
Transparent Communication: Clear reasons for the proposed changes must be communicated to employees, with a genuine opportunity for feedback.
Consideration of Alternatives: Employers must exhaust all reasonable alternatives to dismissal and re-engagement before proceeding.
Documentation: Employers should keep detailed records of the consultation process and decision-making to demonstrate compliance with the Code.
While the Code is not legally binding, it holds statutory weight. Employment tribunals will be able to uplift awards by up to 25% for unreasonable failure to comply, as detailed in the Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment of Schedule A2) Order 2024 (SI 1272/2024).
Impact on Employers
Financial Penalties for Non-Compliance
Under the new Order, employment tribunals can increase or decrease awards by up to 25% if an employer unreasonably fails to comply with the Code. This adjustment applies to claims under section 189 of TULRCA 1992, specifically those relating to protective awards in collective redundancy scenarios.
Protective awards are already a costly award – designed to punish employers rather than compensate employees for actual loss. As protective awards can be as high as 90 days’ wages, an additional 25% makes these very costly.
Non-compliance will result in even more substantial financial penalties when reflecting that most of these cases involve large groups of employees. The reputational damage associated with tribunal findings of unreasonable conduct may also deter prospective employees and harm industrial relations.
Administrative Burden
The Code’s emphasis on consultation and documentation introduces additional administrative requirements for employers. Businesses must invest time and resources into:
Preparing detailed communication plans.
Conducting thorough consultations.
Maintaining comprehensive records to evidence compliance.
Failure to meet these standards could leave employers exposed in tribunal proceedings.
Strategic Workforce Planning
Employers must approach workforce changes with greater caution. Fire and re-hire should only be considered after exhausting all other options, such as:
Voluntary agreements.
Temporary adjustments to terms.
Alternative cost-saving measures.
Legal and HR teams should work closely to ensure any proposed changes align with the Code’s principles and avoid triggering tribunal penalties.
Looking Ahead: A Ban on Fire and Re-Hire?
The Code’s introduction comes amid broader government proposals to ban fire and re-hire practices altogether. The new Employment Rights Bill, currently moving through the House of Commons, includes provisions to outlaw the practice where dismissal and re-engagement are used as a negotiating tactic.
If enacted, the ban would represent a more significant shift, effectively removing fire and re-hire as an option for employers. In its place, employers would need to rely on voluntary negotiations and other collaborative approaches to implement changes.
Practical Steps for Employers
To prepare for the new regime, employers should:
Review Policies: Ensure all HR policies and procedures reflect the principles of the Code.
Train Managers: Equip managers with the skills to conduct meaningful consultations and manage workforce changes effectively.
Engage Early: Proactively engage employees and trade unions in discussions about proposed changes to terms and conditions.
Seek Legal Advice: Consult employment law experts to navigate complex scenarios and ensure compliance with the Code.
Plan Ahead: Monitor developments in the Employment Rights Bill and be ready to adapt to potential legislative changes.
As the government moves closer to potentially banning fire and re-hire altogether, employers should view this as an opportunity to strengthen their approach to workforce planning and employee engagement. By taking proactive steps now, businesses can ensure they remain compliant and competitive in an evolving regulatory landscape.