Many people did not like the cut of P&O’s jib last March, when it made about 800 employees redundant via a video call. The ferry company insisted that the move was crucial to its survival, but eyebrows were raised when the firm immediately replaced those employees with cheaper agency workers.
The case crystallised concerns about the rise of so-called fire-and-rehire practices. This is when employers seek to make changes to their terms of employment and, if employees don’t agree, their contracts are terminated. They may then be offered the chance to rejoin the company on those rejected – and typically less favourable – terms.
Figures released in 2021 by the Chartered Institute of Personnel and Development revealed that 22% of employers had amended their employees’ contracts since the start of the pandemic, mainly to reflect changes in work location, hours and pay. About 3% of employers had dismissed staff and rehired them as part of this exercise.
What’s in the new rules?
Fire and rehire has become such a toxic policy since the P&O scandal that, according to one poll last year, three-quarters of the UK population believe that it should be banned. While it’s not proposing to go that far, the government is looking to crack down on it with a new statutory code of practice on dismissal and re-engagement. A consultation on its contents ended in April. The code is likely to go before Parliament later this year.
Under the code, employers would be required to consult staff throughout the process and explore alternative options without using the threat of dismissal to force employees into acquiescing to any new terms. Its guidance also advises engaging in regular and meaningful communication with employees, conducting an ongoing assessment of whether the changes are vital and always giving as much notice as possible. Fire and rehire should only be a last resort.
Crucially, these aren’t just warm words. Employment tribunals will be given the power to increase an employee’s compensation by up to 25% if their employer is found to have unreasonably failed to comply with the code.
How the rules codify best practice
Much of what’s in the code should be familiar to HR teams, according to Angela Brumpton, a partner specialising in employment matters at law firm gunnercooke.
“It is merely a statement of what is already good practice,” she says. “Prudent lawyers would always advise a client to inform staff, explore solutions, seek feedback and reach an agreement if at all possible. But the code is seeking to overlay a minimum standard of good behaviour on top of this. It acknowledges that the employer may ultimately face unfair dismissal claims as a result of a fire-and-rehire exercise and will have to show it acted fairly and reasonably in all circumstances.”
Chris Garner, MD of HR consultancy Avensure, agrees that the code “raises the bar of reasonableness” and formulates a clearer process around fire and rehire.
“It stops employers using it as a first resort,” he says. “There may be companies that are in very difficult financial situations and see it as the only way out, but this code will refocus their minds.”
What does this all mean for HR teams?
HR teams will need to review the new rules and processes. Brumpton warns that the code also has some key weaknesses that employers will need to account for. For instance, there is no guidance on the requirement for them to consult “for as long as possible” to reach an agreed solution. This could prove too vague and be open to challenge, she predicts.
“The code also warns employers against using threats of dismissal to intimidate,” Brumpton says. “In practice, this could be a delicate balancing act. Employers need to be honest with employees that a failure to agree changes may result in job losses.”
Instead of HR just implementing the managerial decision, it should understand the full financial rationale
HR teams may need to up their game too – for instance, by paying closeer attention to the legal details in negotiations and adopting a more conciliatory tone.
“It’s not always what you do but the way that you do it,” Brumpton explains. “HR professionals need to be very careful about the language they use. They should be telling their managers not to threaten dismissal and instead change the language subtly to say that this is only a possibility.”
Tina Chander, head of employment law at Wright Hassall, believes that the code gives HR professionals the chance to ditch the “cloak and dagger” approach to fire and rehire.
“The starting point in the new code is that you want to make changes, but you also want the employee to stay in the business,” she says. “You need to have a dialogue to make that work. That should put HR in the spotlight in a more positive way.”
Why prevention is better than cure
To head off the risk of fire and rehire before it arises, Garner advises HR professionals to work more closely with senior decision-makers in the organisation to spot operational warning signs that could lead to panic dismissals.
“If an employer suddenly can’t pay the wages at the end of the month, then fire and rehire becomes an option,” he says. “Plan well ahead to give yourself time to follow the process and consider the options in that scenario. It’s fairer to the employee.”
Alan Price, chief executive of BrightHR, agrees that it’s crucial for HR practitioners to understand the business situation in more detail before entering negotiations with employees.
“Instead of HR just implementing the managerial decision, it should understand the full financial rationale behind it,” he says. “If employees refuse the new terms, then take them on the journey as to exactly why the business is doing this. Be more open and informed about costs, sales and profit margins. HR needs to develop more financial literacy and commercial skills.”
One other key consideration is that, given the recent negative publicity surrounding P&O, employers must bear in mind the reputational risks of any misstep in this area.
But, even with the added risk of more scrutiny, an increase in tribunal costs and uncertainty over parts of the code, Brumpton believes that HR professionals have the expertise to keep handling the process.
“There are existing codes for dismissals. This new one doesn’t mean fundamental change, so there is no need to parachute in specialist lawyers,” she says.
That said, fire and rehire is likely to remain a risky business. “If you don’t get this right, it will cost you,” Garner warns. That, after all, is how the government really intends to prevent another P&O-style scandal.
