Draft Code of Practice on dismissal and re-engagement published

If confirmed, the new code of practice could significantly impact the way employers approach changes to terms and conditions.

In 2021 British Gas hit the headlines in the UK for the way it sought to introduce changes to its contracts with its engineers, which ultimately led to many gas engineers who refused to sign up to the new terms being dismissed from their jobs. P&O Ferries followed in the headlines in March 2022 for the way its ferry staff were dismissed and replaced with staff on much lower hourly rates.

Politicians of all stripes decried these practices and promised action and immediately on the back of the P&O events the government announced it would be issuing a Statutory Code of Practice to address ‘fire and rehire’ practices. 

The Department for Business, Energy & Industrial Strategy (BEIS) has now published the draft of this Code of Practice and launched a simultaneous consultation inviting feedback until 18 April 2023.

The draft Code of Practice

Paragraph 5 of the draft Code summarises its intentions: it has been created to ensure employers seeking to change terms of employment take all reasonable steps to explore alternatives to dismissal and to ensure employers engage in meaningful and good faith consultation with employees (or their representatives). Employers should not ‘use threats of dismissal’ to put undue pressure on employees to accept new terms and should seek to find an agreed solution. The draft Code makes clear that dismissal should be a last resort only considered where there is no reasonable alternative.

However, the draft Code does state that it is for employers to make economic and strategic decisions for the benefit of their business, and for employers to ultimately decide if changes to employee contracts are necessary for those purposes.

The key principles outlined in the draft Code are as follows:

• Employers must provide information to employees and their representatives as early as possible and continue to consult and negotiate with them in good faith for as long as possible to seek a resolution;
• As a matter of ‘good practice’ employers should continually reassess its proposals in light of negotiations and consultation feedback;
• Employers should provide meaningful information to employees and their representatives and both parties should seek to ‘respond openly and in good faith to questions and concerns’;
• If changes are agreed the employer should put them in writing setting out clearly what the amendments are and when they take effect. Employers should continue dialogue with staff over a period of time as new terms are adapted to, and feedback should be sought;
• If it becomes clear that employees are not going to accept the proposed changes and the employer considers it needs to unilaterally impose them, the employer should be aware of the risks of claims inherent in this approach and should re-examine its business strategy (presumably to see if alternatives are available) and why the proposed changes are needed;
• Even where an employer unilaterally forces the changes, the draft Code recommends employers approach the situation in the same way as set out above, and keep dialogue and feedback channels open; and
• Employers should only dismiss as a last resort and after a re-assessment and concluding there is no other option available. Where employees are re-engaged on new terms, employers should keep the new terms in review and consider whether they are in fact required.

The draft Code also sets out the key legal issues for both employers and employees in these situations. For example, the Code highlights how employers need to be mindful of their legal obligations in respect of following collective bargaining procedures, obligations to consult collectively on redundancies or issues that arise as a result of a transfer of employment. The draft Code also explains how employees can work under protest of imposed changes and covers the possibility that the employment contracts will have been breached as a result of the imposition of changes by employers. 

The draft Code stresses the importance of employers being transparent about the fact that it is prepared, if negotiations fail and agreement cannot be reached, to dismiss employees in order to force changes through. However, it makes clear that “a threat of dismissal should never be used only as a negotiating tactic in circumstances where the employer is not, in fact, contemplating dismissal as a means of achieving its objectives.”

Impact

As a Statutory Code of Practice, the Code must be taken into account by a Court or Tribunal should an employee bring a claim for unfair dismissal and for certain claims under the Trade Union and Labour Relations (Consolidation) Act 1992, including for inducements to breach collective bargaining terms. An unreasonable failure to comply with the Code by the employer can result in an uplift to any tribunal award of up to 25%.

The draft Code is set out in a way that is accepting of the needs of businesses to be able to change terms and conditions in line with strategic considerations and that ultimately it is for the officers of that business to make those decisions.

Far from banning or preventing ‘fire and rehire’, the draft Code rather clarifies the conditions under which those practices – as well as changes to terms and conditions more generally – may be acceptable.

The draft Code does not fundamentally change the current legal risks for employers, although it does increase the financial risk of claims. Rather, it highlights the need for meaningful and good faith information and consultation processes and that employers consider whether their proposed changes to contractual terms and conditions are affected by this process.