Ashley Matthews is an associate in the employment team at Thomson Snell & Passmore
Despite being a fast-growing sector, construction must contend with a labour shortage, rising material costs and project delays. Costly tribunal claims, loss of staff and reputational damage put unnecessary – and potentially fatal – pressure on firms’ already tight margins. As a result, some misuse the controversial practice of ‘fire and rehire’ to force changes to employees’ terms and conditions, keep workers employed on projects and reduce costs.
To limit the use of such tactics, the Conservative government developed a statutory code of practice on dismissal and re-engagement. As of 18 July, the code is now in force. Construction firms will need to manage employment relations and ensure they have the necessary infrastructure to comply with the code.
What is ‘fire and rehire’?
An employer is not usually able to make changes to an employee’s contract without their agreement. When an employee refuses to agree, the employer might decide to dismiss them and offer to re-engage them on new terms.
“Construction firms that follow the code will build a reputation as good employers, which will help them to win and retain talent”
This practice already poses a financial and legal risk to employers, which is why it is usually only used as a last resort, such as when facing redundancies or business closure, or by large companies that view it as a manageable risk. While the threat of increased compensation awards may deter some employers from misusing the practice, it is unlikely to deter all.
There are also employers that will use the threat of fire and rehire as a negotiation tactic to force the hand of employees, without any intention of following through: the threat may be enough to get them to agree to new, less favourable terms rather than make a futile stand to resist them.
The practice itself is not illegal but it does risk reputational damage, weaker employee relations and claims of unfair dismissal. For example, one firm was accused by the union Unite in December 2021 of being ‘a Scrooge employer’, when it was rumoured that the business was planning to fire and rehire more than 1,500 workers.
New code of practice
The code sets out to reinforce good employment practices and condemns the misuse of fire and rehire. It sets out practical guidance and accepted standards for employers when making changes to employees’ terms and conditions. The code also applies to the practice of ‘fire and replace’, which is where employees are fired and new staff are hired on less favourable terms.
If employers unreasonably fail to follow the code, an employment tribunal could increase compensation awarded against them by up to 25 per cent. If an employee unreasonably fails to comply with the code, their compensation may be reduced by 25 per cent.
The code does not prohibit the practice of fire and rehire, but it does confirm that it should only be used as a last resort, after taking all reasonable steps to explore alternatives to dismissal and engaging in meaningful consultation. It sets out a roadmap for employers to follow to carry out the process fairly, including:
- Providing employees with information regarding proposals
- Conducting meaningful consultation
- Contacting dispute-resolution service ACAS for advice before raising the prospect of dismissal and re-engagement with employees
- Re-examining the proposals
- Outlining the risks and recommendations if (1) changes are agreed, (2) the employer decides to unilaterally impose new terms or (3) the employer decides to dismiss and re-engage the employee
If followed, the code should lead to fairer and more equitable outcomes for employees. Early and extensive consultation by employers will provide a significant shift towards a more proactive collaborative approach to employment relations. Furthermore, construction firms that follow the code will build a reputation as good employers, which will help them to win and retain talent in a competitive job market.
The future for the code post-election
Labour has been critical of the code and asserted in its general election manifesto that, in government, the party would replace it with a ‘strengthened’ code of practice. It remains to be seen what changes will be made to the code. But the new government has committed to introducing an Employment Rights Bill in its first 100 days, part of which will look to end “the scourges of ‘fire and rehire’ and ‘fire and replace’ by reforming the law to provide effective remedies and replacing the previous government’s inadequate statutory code”. So we’ll find out soon.
