My client is considering changing their employee’s contractual terms, as the business is in financial difficulties, and they must make cost savings.
I understand if they cannot get agreement, they might need to dismiss and re-engage their employees, and the rules on doing this have changed. What does my client need to know about this?
From 18 July 2024, a new statutory Code of Practice on Dismissal and Re-engagement (or ‘fire and re-hire’) applies. This sets out principles employers are expected to follow when dismissing and re-engaging employees to change their contractual terms when voluntary agreement is not possible. It applies where an employer seeks to change employees’ contractual terms and they envisage they won’t get voluntary agreement to it.
The Code was created to ensure that employees are not threatened with dismissal as a way to obtain agreement. It encourages meaningful consultation and seeks to ensure employees are treated fairly. Dismissal and re—engagement is an extreme option, and your client needs to explore alternatives before taking this step as a last resort.
Under the Code, your client will need to carry out meaningful consultation with their employees on the proposed changes, including those absent from the business on all types of leave. If they recognise a trade union, they will also need to talk to employee representatives.
This applies even if your client thinks they’re not likely to get agreement, and they should negotiate for as long as possible. They must not use threats of dismissal to pressurise employees into accepting new terms or raise dismissal as a possibility too early.
They should share as much information regarding the proposals as reasonably possible for employees and/or their representatives to understand what they are and why they’re being made. This will enable them to ask questions and make counterproposals, but your client doesn’t need to share what they reasonably believe to be commercially sensitive or confidential. Information to be shared could include:
- the proposed changes
• who will be affected and when
• the business reasons for the proposals
• alternatives already considered
• the proposed next steps.
Your client will need to genuinely consider any reasonable alternative proposals, with a view to reaching an agreement. As fire and re-hire is a last resort, consultation is a critical step.
If employees do not agree, the plans should be re-examined considering:
- the objectives behind the proposals
• the negative consequences of acting unilaterally
• whether the plans carry any risk of discrimination
• reasonable alternative ways of achieving its objectives.
The employees might benefit from more time to make arrangements which might better enable them to accommodate the changes, or additional support could be provided to make the transition easier, and this should be considered on an individual basis.
If agreement is still not reached, dismissal and re-engagement might be necessary. The new terms should be set out in writing and employees must be re-engaged as soon as possible to retain their continuity of service. The only changes should be those that have been consulted on.
Once the changes have been introduced, your client should continue to review them to check they are still necessary. Getting employee feedback will be useful for this.
A failure to follow the Code does not in itself mean your client will be liable to a claim, however, it will be admissible as evidence in proceedings before an employment tribunal if an unfair dismissal claim is brought.
To find out more about how this will affect your company and employees please contact your KKVMS advisor.