Changing Contractual Employment Terms: Dismissal and Re-engagement Code Published

Acas has published an updated draft Code of Practice on dismissal and re-engagement, commonly referred to as “fire and re-hire”, following consultation on an earlier version last year. Once approved by Parliament, the Code is expected to have effect from Summer 2024.  

Background and Code’s purpose

Where an employer wishes to change an employee’s terms and conditions of employment, they generally need the employee’s agreement.  Imposing changes without the employee’s agreement will be a breach of contract and risk claims, including for breach of contract and unfair constructive dismissal.  Where an employee refuses to agree changes, an employer may decide to terminate the employee’s employment and offer re-engagement on the revised terms.  Where an employer proposes to dismiss 20 or more employees within a period of 90 days or less, collective redundancy consultation obligations will be engaged.  

The purpose of the Code is to ensure that an employer takes all reasonable steps to explore alternatives to dismissal and engages in meaningful consultation with a view to reaching an agreed outcome. The Code also seeks to ensure an employer does not raise the prospect of dismissal unreasonably early, or put undue pressure on employees by threatening dismissal where this is not, in fact, envisaged.

Scope of Code

The Code provides practical guidance to employers and employees where an employer is considering making changes to one or more employees’ employment contracts and envisages that it might opt for dismissal and re-engagement if the changes are not agreed.  The Code will apply regardless of the number of employees affected and regardless of the employer’s reasons for seeking to make the changes.  It will not apply where the only reason the employer envisages it might dismiss is redundancy. 

Information-sharing and consultation: general considerations

The Code makes it clear that information and consultation is an ongoing process, not a single event. An employer should consult for as long as reasonably practicable in good faith, with a view to reaching agreement.

Where an employer recognises a trade union in respect of an employee, the employer should provide information about its proposals to the union. Otherwise, subject to its legal obligations (for example in respect of consultation on collective redundancies and pension changes), the employer can choose to provide information to whichever is the appropriate of an existing body of employee representatives, representatives specifically chosen for this purpose or with each of the employees individually, with the employer’s choice depending on what is reasonable in all the circumstances. 

Information-sharing

Employers should provide as much information as reasonably possible and as early as reasonably possible. It should consider providing the following information and it is good practice to provide it in writing:

• What the proposed changes are (including what the proposed new and/or revised terms will look like);
• Who will be affected by the proposed changes;
• The business reasons for the proposed changes;
• The anticipated timings for the introduction of the proposed changes and the reasons for those;
• Any other options that have been considered; and
• The proposed next steps.

Consultation

To enable meaningful consultation, parties should engage with each other openly and in good faith and genuinely consider the points put forward. The employer should be as clear as possible about its objectives and the nature of its proposals, consult for as long as reasonably possible and genuinely consider any reasonable alternative proposals with a view to reaching an agreed outcome.

Raising the prospect of dismissal and re-engagement

If at any point an employer intends to opt for dismissal and re-engagement, if an agreed outcome cannot be reached, the Code says it is important for the employer to be clear about that. However, the employer should not raise the prospect unreasonably early as this might be detrimental to attempts to reach an agreed outcome. In addition, a threat of dismissal should not be used as a negotiating tactic to put undue pressure on employees in circumstances where the employer is not, in fact, envisaging dismissal as a means of achieving its objectives.

The Code also says that an employer should contact Acas for advice before raising the prospect of dismissal and re-engagement.

Re-examination of proposals

Once it is clear that the changes will not be agreed, but the employer considers it still needs to implement the changes, the employer should re-examine its proposals, taking into account any feedback received from employees or their representatives so far.  Factor it should consider include (but are not limited to):

• The objectives it is seeking to achieve;
• The negative consequences of imposing the proposed changes. These could include:
  • risks to the employer's reputation;
  • damage to relationships with its workforce or representative trade unions;
  • the potential for strikes or other industrial action;
  • the risk of losing valued employees; and
  • the risk of facing legal claims, and the associated costs and management time.
• Whether its proposals could have greater impact on some employees than others, for example because they share a protected characteristic under the Equality Act 2010; and
• Whether there are any reasonable alternative ways of achieving the employer's objective.

Agreement

If changes are agreed, it is good practice to communicate the changes in writing, setting out clearly when they will come into effect and giving as much notice as reasonably practicable. In addition, where there is a change to any of the particulars covered by a written statement of employment particulars, the employer must give the employee a written statement of change within one month of the new terms taking effect.

Unilateral imposition of new terms

The Code notes that where it has not been possible to reach an agreed outcome on the proposed terms, some employers may decide to impose them anyway.  Where an employer relies on an existing clause giving them a power to impose a contractual change, they should consider the scope of that power and the legal implications of using it.  If there is no such term, an employer who decides to impose the changes will usually be breaching the employee’s contract.  The Code notes the significant legal risks stemming from imposing changes unilaterally, especially where the contract does not clearly and unambiguously provide for this. An employee might, for example:

• Resign and claim constructive unfair dismissal;
• Refuse to work under the new terms;
• Continue working, but under protest, potentially also bringing claims for breach of contract and/or any shortfall of wages;
• Work under the new terms, but claim unfair dismissal;
• Bring a discrimination claim if, for example, they feel they have been treated less favourably on the basis of their protected characteristic.

It is good practice for an employee who decides to continue to work, but under protest, to make it clear to their employer that this is what they doing, and set out the terms that they do not agree to.  It is also good practice for the employee to put their objections in writing.

Where an employer imposes terms unilaterally, it is good practice to  communicate the changes in writing, setting out clearly when they will come into effect (giving as much notice as reasonably practicable) and the employer must comply with its obligations in respect of the written statement of employment particulars.

Dismissal and Re-engagement

The Code acknowledges that an employer who has participated in a thorough and open information-sharing and consultation process, and genuinely considered any reasonable alternative proposals, might opt for dismissal and re-engagement but this option should be treated as a last resort.  

It reminds employers that in order for the dismissal to be fair the employer must have a potentially fair reason for dismissal, have acted reasonably in treating that reason as a sufficient reason for dismissal and have followed a fair dismissal procedure. The employer should give as much notice as reasonably practicable of the dismissal and comply with whichever is the greater of the employee’s contractual or statutory notice period, as a minimum. 

The employer should also consider whether the employees might benefit from more time in order to make arrangements which might better enable them to accommodate the changes and whether it can offer any practical support, such as relocation assistance, career coaching or counselling for emotional support.  

The employer might commit to reviewing the changes at a fixed point in the future, perhaps with a view to reconsidering whether it still considers the changes to be reasonably necessary. Where an employer is implementing more than one change, it might consider introducing them on a phased basis.

Again, it is good practice to set out the new terms of employment in writing and the employer must comply with its obligations in respect of the written statement of employment particulars.  The employer should ensure that the only terms that are changed are those that have been subject to the information-sharing and consultation process, and should not use this as an opportunity to make any further changes. 

The employer should re-engage the employee as soon as reasonably practicable.

Inviting feedback

In all cases, it is good practice for the employer to invite feedback about the changes as the employees adapt to them, and consider what might be done to mitigate any negative impacts on employees.   

Legal status of the Code

While failure to follow the Code does not give rise to standalone claims, a court or tribunal must take any relevant provision of the Code into account when deciding claims. In addition, in certain employment tribunal claims, an employment tribunal has the power to increase or decrease compensation by up to 25% where the employer/employee has unreasonably failed to follow the Code. 

What does this mean for employers?

The Code provides step by step guidance for employers who are considering making contractual changes through dismissal and re-engagement and is presented in a much more logical order, making it more accessible than the previous draft version consulted upon.  By following the Code, employers may be able to secure agreement to contractual changes, but where this is not possible, it should  help employers ensure that any resulting dismissal is fair. Failing to follow the Code could result in compensation being increased by up to 25% where that failure is found to be unreasonable.

Please get in touch if you need help with changing employees' terms and conditions of employment.