Fire and Rehire – Change to compensation rules from 20 January 2025

We reported previously on the new statutory code of practice which should be used in ‘dismissal and re-engagement’ scenarios otherwise known as the practice of firing and rehiring which has received a lot of negative press attention lately (see link to our previous article here).  This code came into effect in July 2024.

The code can be taken into account in legal proceedings, for example it can be used in unfair dismissal claims to assess whether the process followed was fair and compensation for unfair dismissal can be increased/reduced by up to 25% where there has been an unreasonable failure to follow the code.  However, from 20 January 2025, this is being extended further with Tribunals being able to increase/decrease compensation by up to 25% for a successful protective award claim (due to a failure to inform and consult under TURLCA 1992) where there has been an unreasonable failure to comply with the code.

The code can be reviewed in full here, although some of the key points are as follows:

• Where employers are proposing contractual changes, dismissal and re-engagement should be used as a last resort only
• The duty to inform/consult with employees/representatives applies regardless of the reasons for the change or numbers impacted
• Employers should inform and consult with a recognised trade union (if there is one) and otherwise with an existing body of employee representatives, a chosen body of employee representatives or the individuals directly as appropriate – this will depend on what is reasonable in the circumstances
• Information-sharing and consultation is an ongoing process, not a single event
• Even if employees/representatives are unlikely to agree the proposed changes, the employer should consult for as long as reasonably possible in good faith, with a view to reaching an agreed outcome
• Information should be provided as early as reasonably possible (ideally in writing) and employers need to consider what information can be provided about what the proposed changes are, who is affected, the business reasons for the proposed changes, anticipated timings for the proposed changes, other options that have been considered and proposed next steps
• Employers should share as much information as reasonably possible with a view to enabling the employees/representatives to understand the reasons for the changes and be able to ask questions and make counter-proposals.  As part of this, employers should consider whether any further information requested by the employees/representatives can be provided
• Parties should genuinely consider points raised and reasonable alternative proposals with a view to reaching agreement
• If employers intend (in the absence of agreement) to opt for dismissal and re-engagement, they should be clear about that. However, the prospect of dismissal should not be raised unreasonably early, nor should it be used to put undue pressure on employees by threatening dismissal where this is not actually envisaged
• Employers should contact ACAS for advice before raising the prospect of dismissal and re-engagement
• If it is clear agreement will not be reached but the employer still considers it needs to make the proposed changes, the employer should re-examine its proposal taking into account the feedback it has received.  This should also be done where there is a material change in circumstances or material results from the consultations with employees/representatives.  This re-examination may involve looking at the objectives the employer wishes to achieve, the negative consequences of the proposed changes (including risks to reputation, damage to the workforce, potential industrial action, risks of losing employees and risks of legal claims and associated costs), whether the proposals have a greater impact on particular employees (such as those sharing a protected characteristic under the Equality Act 2010) and whether there are any reasonable alternative ways of achieving the desired objectives
• Agreed changes should be communicated in writing.  Further, even if a change has been agreed it is good practice to seek feedback about the changes as the employees adapt to them and to consider ways to mitigate any negative impact on employees
• If employers opt for dismissal and re-engagement they should give as much notice as reasonably practicable of the dismissal (and comply with their usual legal obligations re notice)
• Employers should consider whether employees might benefit from more time in order to make arrangements which might enable them to agree the proposed changes (for example more time to make childcare arrangements if changes to working hours are proposed)
• Employers should consider whether there’s any practical support they can offer such as relocation assistance or counselling
• Employers may consider reviewing the changes at a fixed point in the future perhaps with a view to reconsidering whether the changes are still necessary or introducing multiple changes on a phased basis

In reality, many employers already take these steps and do consider firing and rehiring to be a last resort, however, the code clearly puts best practice onto a statutory footing, and there will be financial consequences for those who unreasonably fail to follow this.  Employers must stay mindful of their statutory obligations to inform and consult under TURLCA 1992 in collective scenarios and the provisions of this code, as clearly applying an uplift of 25% to protective awards could have significant financial implications for employers.