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Government consults on draft dismissal and re-engagement code of practice

On 17 March 2022, P&O Ferries fired 800 staff without notice via a pre-recorded video.  According to reports, employees were told ‘your final day of employment is today’ and that the employees were being dismissed on the grounds of redundancy, with vessels being primarily crewed by agency workers going forwards.  P&O Ferries said that it had offered ‘enhanced severance terms to those affected to compensate them for the lack of warning and consultation’.  It reportedly offered staff 90 days’ pay on top of a redundancy package (equivalent to the compensation that it would be awarded to pay if an employment tribunal found that it had unfairly dismissed employees and failed to comply with the requirement to collectively consult).

Following the outcry over the P&O Ferries dismissals, the Government announced that it would introduce a new statutory Code of Practice on the use of ‘fire and rehire’ practices to bring about changes to employees’ terms and conditions.

The draft Code has now been published and a 12-week consultation period has commenced.

The draft Code of Practice

The draft Code of Practice (‘the Code’) sets out the steps that an employer should take whenever it considers that it wants to make changes to employees’ contracts of employment and envisages that, if the employees do not agree to those changes, it might dismiss them and either offer them re-employment on those new terms or engage new employees or workers to perform the relevant roles on new terms.  The focus is on ensuring that both the employer and employee (or their representatives) act in good faith in seeking to resolve such disputes.

The Code stipulates that once it is clear to the employer that employees are not prepared to accept new terms without further negotiation, it should first re-examine its business strategy and plans due to the serious consequences for employees and consider whether there are alternatives ways of achieving the same objectives.

If, despite re-examining its business strategy and plans, the employer decides to press ahead with changes to terms and conditions, the employer should, amongst other things:

  • share as much information regarding the proposals as is reasonably possible;
  • engage in meaningful consultation which is conducted in good faith;
  • consider any alternative proposals made by employees and be prepared to engage in a genuine exploration of whether they are workable or will meet the employer’s objectives; and
  • not consider unilaterally imposing contractual changes unless it is satisfied that all reasonable alternatives which might have resulted in agreement have been fully explored first.

The Code notes that it is important that employees understand the employer’s objectives and the nature of its proposals and that it is important that the employer is honest and transparent about the fact that it is prepared, if negotiations fail and agreement cannot be reached, to attempt to unilaterally impose changes or to dismiss employees to force changes through.

If dismissal and re-engagement is the only possible option available, the employer should give as much notice as possible of the dismissal and consider whether any employees might need longer notice to enable them to accommodate the changes.  The employer should keep the need for the change under review so that original terms might be re-introduced if the original reason for making the change is no longer relevant.

The Code applies regardless of the number of employees affected, or potentially affected, by the employer’s proposals and expressly does not apply to redundancy situations.

What will happen if the Code of Practice is not followed?

Failure to comply with the Code will be considered in any relevant claim (including claims for unfair dismissal,  protective awards and unlawful inducement awards) and any compensation awarded can be increased by up to 25% for the employer’s failure to comply with the Code or decreased by up to 25% for the employee’s failure to comply with the Code. To a large extent, employers who are keen to comply with current legislation and case law and to ensure good employee relations when considering making changes to terms and conditions of employment which could lead to the dismissal and re-engagement of employees, will not need to change their practices to any great extent.  The draft Code is reflective of current good practice and such employers are likely to comply with the Code in any event.  This is particularly the case where employers are proposing to dismiss and re-engage 20 or more employees where there are existing requirements to collectively consult.  However, the Code does apply to situations where employees are proposing to dismiss and re-engage fewer than 20 employees so care should be taken to comply with the Code under those circumstances also. It remains to be seen whether the threat of a 25% uplift on compensation will be sufficient to avoid a repeat of the actions of P&O Ferries in 2022. When will the Code of Practice come into force? 

The Government has not set a timeframe for bringing the Code of Practice into force, stating that it will be ‘when parliamentary time allows’.