“Fire and Re-hire” Code of Practice comes into force

Last week, on 18 July 2024, the Department of Business and Trade published a new Code of Practice on Dismissal and Re-engagement, more commonly known as fire and re-hire.

Employers can contemplate the practice of fire and re-hire when making changes to employees’ contracts, usually for strategic business reasons.

The preferred and least risky way of going about changing employment terms is to consult with employees about the proposed changes to seek their agreement. However, this is often not straightforward. Where employees do not or are unlikely to agree, employers can take the more aggressive approach of dismissing the employees and immediately re-hiring them on new contracts with the altered terms. This results in an employer breaching the employees’ contracts and can result in a number of claims being brought against them by disgruntled employees.

The key provisions of the new Code of Practice are as follows:

• The fire and re-hire approach should be treated as an option of last resort.
• Even when employers do not believe employees are likely to agree the proposed changes they should be consulted with for as long as possible in good faith.
• Information about the consultation should be provided as early as possible.
• If an employer intends to opt for fire and re-hire they should be clear about that but not in a way that could be perceived as a threat or at such an early stage so as to damage the consultation process. It appears the intention would be for this to be raised when there is a clear indication an agreed outcome cannot be reached.
• Employers should re-examine their proposals once an agreement cannot be reached, taking into account feedback received from employees or their representatives. The Code lists a number of factors to consider.
• Regardless of whether changes can or cannot be agreed, the Code emphasises that changes should be communicated to the employees in writing and if appropriate an updated contract should be provided.
• Good practice is to continue to seek feedback from employees as they adapt to the changes including considering ways to mitigate any negative impact.
• Employers may want to commit to reviewing changes at a fixed point in the future or where implementing more than one change, to do so on a phased basis.

Whilst the new Code does not introduce any groundbreaking best practices, it is now in effect. Consequently, if an employer fails to follow the guidance, any compensation awarded to an employee can be increased by 25%. Conversely, if an employee fails to comply, their award can be reduced by 25%.