Government to introduce new statutory code to prevent ‘Fire & Rehire’ following P&O scandal

What has brought about this change?

P&O Ferries hit the headlines in March this year after they dismissed 800 employees without notice. Staff received a pre-recorded video in which they were told that their employment would terminate that same day. The sudden dismissals caused mass outrage, being described as “one of the most shameful acts in the history of British Industrial relations” by the RMT union and attracting condemnation across the political spectrum. The CEO of P&O Ferries later admitted to knowingly breaking the law by failing to consult with affected employees and their union, calculating that their proposals would not be accepted in any event.

Acknowledging the widespread condemnation of P&O’s actions, the government has announced that a new Statutory Code of Practice will be published on the use of “fire and rehire” practices to implement changes to employee’s terms and conditions. Fire and rehire arises when an employer unilaterally changes the terms and conditions of an employee’s contract by dismissing them and then re-employing them on new terms and conditions. The government previously refused to legislate to prevent fire and rehire, instead asking ACAS to publish guidance, however the anger caused by P&O has forced the government to take action.

What does the new Statutory Code entail?

The new Code is an attempt to clamp down on tactics used by employers who fail to engage in meaningful consultations with their employees prior to making changes to their terms and conditions. The Code will set out how employers must carry out fair, transparent and meaningful consultations with staff on proposed changes to their terms of employment. The Code aims to provide practical advice on the steps that employers should take.

Most importantly for employers, Employment Tribunals will be required to consider the Code when deciding upon relevant cases, such as unfair dismissal. They will have the power to apply an uplift of up to 25% of an employee’s compensation where the employer has unreasonably failed to follow the Code.

When will the Code be implemented?

The government has confirmed that an initial draft of the new Code will be published “when parliamentary time allows”. It is likely that the government will continue to be pressed on this given the public discourse surrounding fire and rehire.

Why does this matter to your business?

In addition to facing potential increasing amounts of compensation in an Employment Tribunal, businesses should be aware that fire and rehire as a practice can be damaging to an employer. It has the potential to severely (or perhaps permanently) damage staff morale and trust, with the knock-on impact on productivity and revenue. Whilst it may damage relations with current staff, resulting in the loss of employees, it may also make it difficult to recruit new employees, particularly if it becomes public. And reputational damage is not just limited to recruitment: according to YouGov, P&O has witnessed a collapse in brand perception following the mass dismissals, which may have a direct impact on sales going forward. A Survation poll found that 76% of the public think that fire and rehire should be banned, whilst 67% of people would avoid buying goods or services from companies that used fire and rehire. There is also the risk of legal challenges being brought by those employees that are dismissed because of fire and rehire. The likelihood of employees bringing claims will only have increased given the widespread media attention that the P&O incident has attracted, as employees are now potentially more alive to the potential illegality of fire and rehire.

What can your business do if it needs to make changes to employees’ terms of employment?

The brand perception damage suffered by P&O serves as a reminder of the risks involved when making changes to an employee’s terms of employment, however sometimes an employer will have no choice but to make changes. The most effective way of proceeding would be to engage in meaningful consultation with employees and their trade union (if applicable). As part of the consultation, an employer should respond to any concerns raised by the employee and consider any proposals that they may put forward. This means that an employer should be willing to reconsider their proposals or be open to making changes to address any points raised, where possible. Ultimately, both businesses and their employees may find this period of change difficult to manage.