Consultation - Code of Practice on firing and re-hiring practices

The Government has launched a consultation on its Draft Code of Practice on Dismissal and Re-engagement (the ’Draft Code’) – or, as it is more commonly known, ’firing and re-hiring’. The focus of the Draft Code is the improvement of industrial relations in this inevitably highly charged area. It aims to provide guidance to employers and employees to ensure that dismissal and re-engagement is only used as a very last resort and only after a meaningful consultation process. Failure to follow the Draft Code (if implemented) could have financial implications. As well as the C-Suite and HR teams, this consultation will be of interest to payroll and finance teams modelling the costs of the proposals and the tax treatment of any termination payments.

This consultation will be particularly relevant to employers who are envisaging making changes to terms and conditions of employment for the purpose of harmonising terms across their workforce, are responding to changing operational needs, or to allow greater flexibility in working arrangements.

What does the Draft Code say?

The Draft Code:

• Underlines obligations around real information sharing and meaningful consultation;
• Encourages reaching agreement to changes to terms and conditions where possible;
• Requires ongoing re-examination of business strategy, taking into account feedback provided during consultation;
• Expects a review of alternative options available; and
• States that ’fire and rehire’ should be an option of last resort.

Many of the suggestions in the Draft Code incorporate what most employers would consider to be good practice when seeking to change terms and conditions of employment, so to some degree its impact may be seen as limited.

However, although the guidance contained in the Draft Code would not be legally binding on employers and failure to follow the Draft Code in itself would not expose employers to legal proceedings, it would enable tribunals to adjust any award for specified claims (such as discrimination on the ground of a protected characteristic, unfair dismissal and breach of contract) as follows:

• Increase of up to 25 percent to any tribunal award if the employer has unreasonably failed to comply with the Draft Code; and
• Decrease of up to 25 percent to any tribunal award if the employee has unreasonably failed to comply with the Draft Code.

What next?

The Government is keen to hear views on the Draft Code. Points of particular interest include:

• Whether it is right to require employers to document why information about proposed changes has not been shared with employees/trade unions;
• Whether there is feedback on the factors which need to be considered by employers when changes to their workforce are proposed (key here will be balancing clarity against prescriptive codification in the context of a potential tribunal uplift); and
• Whether the right balance is struck between protecting employee rights and retaining business flexibility.

In the meantime, employers contemplating changes to their workforce should undertake careful strategic, technical and operational planning as the approach taken will have an impact on costs and how the organisation’s values, purpose and confidence in the future is perceived.

The consultation is open until 18 April 2023. If this topic is of interest to you, please get in touch with the authors or your usual KPMG in the UK contacts.

For further information please contact:

• Donna Sharp

• Dorothée Giret