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Head of Employment Jo Mackie discusses the recently published ‘fire and rehire’ code and whether it will curb the increasing utilisation of this practice by businesses conducting redundancy procedures.

Jo’s article was published in Personnel Today, 30 January 2023.

In 2022, P&O Ferries (a Qatari owned business) evaded UK employment law legislation by sacking 786 employees without carrying out the legally required collective consultation, or any negotiation. Part of collective consultation is to inform the Business Secretary using form HR1, notifying them of names and roles of those redundant, with basic information to allow BEIS to prepare for redundancy advice and statutory payments. This was not done, which is an offence that can incur a significant fine.

P&O went on to employ cheaper, non-Unionised agency staff to replace its sacked employees. This became known colloquially as ‘fire and rehire.’

P&O has not been prosecuted or fined by the UK government, which already has the power to do so under the Trade Union and Labour Relations (Consolidation) Act 1992, amongst other legislation. However, reputational damage to P&O Ferries and to the UK government due to its failure to act has been significant. A 2022 Reddit poll found that 75% of the British public said fire and rehire should be banned. The UK government has now said it will take action against “unscrupulous employers” that use the controversial practice of fire and rehire.

Grant Shapps, Transport Secretary, has introduced a 9-point plan including primary legislation to tackle the issues. Through a planned statutory code of practice, the government suggests it will protect employees from being sacked without negotiation or warning. The code, subject to a consultation now, will allegedly tell employers that they must not use threats of dismissal to pressure employees into accepting new terms, and that they should have “honest and open-minded discussions” with their employees and representatives.

The government also proposes that Employment Tribunals will be able to take the code into account when considering relevant cases, including unfair dismissal claims, with Tribunals being given the power to apply a 25% uplift to an employee’s compensation award if the new code is breached. This is similar to the current uplift if the ACAS code of conduct is breached by employers in disciplinary proceedings.

While fire and rehire is seen as an aggressive tactic, it is not unlawful, per se. Its proper name is termination and reengagement, and it has been used as a last resort by employers to break deadlock, and at times has been shown to save ailing businesses.

The lawful process involves negotiation to agree changes to terms and conditions in order to save a business from insolvency or threat of insolvency. If that fails, the employer may issue notices of termination of existing contracts, with the option to resume employment on new terms and conditions which are in the employer’s favour. If the original contract is honoured until its termination date, correct redundancy payments are made and there is a fair reason for the redundancy. The risk to the employer is low in these cases, provided they follow a fair and reasonable process with proper consultation. The most likely lawful reason will be ‘some other substantial reason’ if the employer is genuinely in dire straits.

Termination and reengagement is not common, nor is it completely risk free but it is a potential last resort for business.
Nautilus, the union representing many of the employees fired by P&O, was horrified by the situation, with General Secretary Mark Dickinson saying ‘we demand P&O Ferries engage with the recognised unions, and reinstate all staff who were sacked’. Unfortunately, that did not transpire, but Nautilus does seem pleased that Shapps has taken concerns on board and that government is consulting. Mr Dickinson said: ‘we are glad that government want to ensure the despicable actions of P&O Ferries can never happen again’.

The problem is now that employers are increasingly seen to use fire and rehire as a first option, without engagement and negotiation, meaning that employees receive redundancy notices without warning. Given that the government chose (for whatever reason) not to pursue P&O for breaching UK employment law and failing to consult, engage or negotiate with its employees, it gave an indication to other employers that they could follow the P&O lead, albeit they would face reputational damage. What will be interesting to see is exactly what legislation Grant Shapps proposes to enable a statutory code to have real teeth. Is the only potential for an Employment Tribunal to consider an uplift in the award if the employer is found culpable? If so, that is less harsh than the potential fines that could have been awarded against P&O if the government had chosen to enforce the existing law, and it remains to be seen how robustly the approach to breaches of UK employment law will be dealt with going forward.