Fire and rehire – recent developments, and what happens next in UK law

Fire and rehire – recent developments, and what happens next

Fire and rehire is in the news – not just because it's a headline issue in the UK Labour Party manifesto but also because UK rules changed just after the election was announced. What has happened and what is ahead?

Often a story about jobs and employees will hit the headlines and many  people feel that on the face of it something unfair has happened.  Whilst the position behind the headlines may be more nuanced, the Courts and Government may need to try to address both perceived and actual unfairness.  The P&O Ferries dismissal of 800 workers in 2022, and their replacement with lower paid agency workers is one such story.  Another example is the case of Tesco workers who were promised a 'permanent' allowance as a retention move in 2007, only to see Tesco attempt to remove this by proposing to dismiss and re-engage the affected employees on terms that did not include the allowance.

Whilst the Tesco matter is currently being considered by the Supreme Court, P&O immediately offered compensation packages to affected workers comprising two and a half weeks’ salary per year of employment, up to 13 weeks’ notice pay, and a further 13 weeks’ salary in lieu of collective consultation.  In many cases this package would have exceeded the maximum amount the workers would have been entitled to had they pursued claims and won.  Nevertheless, many view the P&O case as evidence that the law needs reform.

New rules from 18 July 2024

Following P&O Ferries the Conservative government drafted and consulted on a new code of practice on dismissal and re-engagement that will come into effect on 18 July 2024.  Employers will therefore need to be aware of the guidance in the Code and apply it to all relevant proposals put to employees on or after 18 July 2024.

The Code is not just for large scale dismissals like P&O. It will apply to any proposal to change the terms and conditions of one or more employees where, if the proposed changes are not accepted, the employer may opt to dismiss the employee and engage them, or someone else, on the revised terms.  

The Code will not apply where the dismissal proposed is by reason of redundancy.  However, in practice drawing a clear distinction between the two scenarios may not be straightforward.

The Code does not create the right for employees to bring stand-alone claims if the Code is not adhered to.  However, failure to apply the Code can be used as supporting evidence in any claims brought by the employee.  Many of the items in the Code of practice already constitute good industrial relations practices implemented by well-informed employers, large and small.  For example, providing information early, consulting in good faith, and allowing employees sufficient time to adjust to changes and providing other support.  The Code is also clear that communication of the potential for dismissal should not be undertaken too early in the consultation process, nor used as a threat where the employer has no intention of following it through.  How to approach the potential for dismissal therefore needs to be carefully thought through.

The Code contains a requirement for the employer to contact ACAS for guidance if they are proposing to dismiss and re-engage.  It is unclear how this will apply in practice.

A measure imposing a 25% uplift in compensation for non-compliance did not complete the relevant parliamentary procedures and unless implemented by the new Government, will not come into effect.

Tesco claim in the Supreme Court

In the Tesco claim, USDAW, the shop workers union, challenged Tesco's decision to dismiss and rehire on behalf of around 43 employees who refused to give up their retained pay.

USDAW was successful in the High Court, which found that describing retained pay as 'permanent' meant for as long as the employee was employed in that role. The court granted an injunction preventing Tesco from terminating the contracts of the employees. The Court of Appeal overturned this decision, finding that 'permanent' meant only for so long as the contract subsisted, which meant that Tesco was free to dismiss and re-engage. It remains to be seen how the Supreme Court will deal with USDAW's further appeal. Any decision it makes could have wide implications for employment contracts, and for attempts by employers to seek to revise those terms.

What might a new Government do?

The topic of 'fire and rehire' has only been specifically addressed in manifestos from Labour and Plaid Cymru.  However, if a Conservative government returns, it would likely implement the 25% uplift for failing to comply with the Code as referred to above.  

Both Labour and Plaid Cymru set out that they will 'end' or 'ban' fire and rehire but with limited detail as to how this will be achieved.  At present, dismissal and re-engagement can be lawful provided the employer can show that the dismissal is fair because there is 'some other substantial reason' necessitating the change (and therefore the dismissal), and that a fair process has been followed.  If fire and rehire is to no longer be available to employers, any legislation would likely need to more closely specify when a 'some other substantial reason' or 'SOSR' dismissal can be used, creating potential uncertainty for employers. There is also a danger that by trying to make 'fire and rehire' more difficult a government may find that it has also made it harder for employers to make people redundant – that would be a major change in employment rights that employers would be unlikely to welcome.

If Labour wins a majority in the election, it is not clear how it will put into effect its proposed 'ban' on fire and rehire.  What is clear is that dismissal and re-engage strategies are used in a wide range of circumstances.  Not all of these circumstances would necessarily be considered exploitative or unfair, and in some cases could save jobs and business.  

Drafting legislation to allow some flexibility for employers where needed, but to protect employees where appropriate will be difficult and may also explain the Code of practice approach adopted by the Conservative government. The Labour Party has criticised the Code as weak and likely to be ineffective but may find that enacting meaningful improvements in this area is harder than it seems. It may therefore end up opting for a stronger Code with more stringent sanctions for non-adherence.  

The effectiveness of any new employment protections is also going to be bound up with the effectiveness of the enforcement regime for employment rights. Look out for a further piece on the parties' proposals for the employment tribunal system.