Legal update: New Code of Practice on Dismissal and Re-engagement in force from July

The Code of Practice on Dismissal and Re-engagement has now completed its passage through Parliament and will come into force on 18 July 2024.

The Code applies to situations where an employer is considering making changes to one or more employee contracts and plans that, if the employee doesn’t agree to some or all of the changes, they “might opt” for the dismissal and re-engagement of that employee.

The purpose of the Code is to:

1. Ensure employers take all reasonable steps to explore alternatives to dismissal and engage in meaningful consultation to try and reach an agreed outcome.
2. Ensure the employer doesn’t raise the prospect of dismissal “unreasonably early” or put undue pressure on employees to agree to their proposals by threatening dismissal where it’s not genuinely a potential outcome.

The Code acknowledges that employers may be under additional legal obligations like collective consultation obligations – we’ll explain this in more detail later – and it doesn’t give any guidance on how to comply with these obligations.

 

Legal status of the Code

A breach of the Code won’t give rise to a claim in its own right but courts and tribunals must take it into account when determining cases. In employment tribunal proceedings where the employer (or employee) has unreasonably failed to comply with the Code, any award may be increased (or decreased) by up to 25%.

 

Information sharing

What should be provided?

The Code states that employers should provide as much information “as reasonably possible” to ensure employees can understand the reason for the proposals, ask questions, and make counter-proposals. This information includes:

• What the proposed changes are (including what the new terms would look like)
• Who will be affected by the proposed changes
• The business reasons for the proposed changes
• The anticipated timings of the proposed changes and the reasons for those
• Any other options that have been considered
• The proposed next steps

The Code says the more information employers share, the more productive the consultation is likely to be.

Consultation

Where there’s a recognised trade union in place, the employer must provide information and consult with the relevant union.

Where there’s no recognised union, the employer can consult with an existing body of representatives, a body elected for these purposes, or with employees individually. However, this doesn’t impact the collective consultation obligations which would apply if failing to agree to the changes could result in dismissal and 20 or more employees are affected.

The Code makes the point that consultation should be meaningful, with the parties engaging with each other openly and in good faith. There must be genuine consideration of points raised and any alternative proposals suggested. Even where the employer thinks the employee isn’t likely to agree, they should consult for as long as possible in good faith to try and reach an agreed outcome.

In terms of duration, the Code states the employer should consult for as long as reasonably possible, but again this is subject to the rules on collective consultation, which require a minimum period of consultation based on the number of employees affected.

 

Collective consultation

Where failing to agree to the changes could result in the dismissal of 20 or more employees, in a 90 day period, employers will have to follow the rules on collective consultation (even though the dismissal is made with an offer of re-engagement).

This will involve:
• the election of employee representatives (unless representatives are already in place)
• completion of an HR1 form, and
• minimum periods of consultation depending on the number of employees affected (30 days for 20-99 employees and 45 days for 100 or more employees).

It’s important these rules are followed carefully, as the penalty for breaching them is very high – a protective award of up to 90 days’ pay per affected employee.

The obligations around collective consultation are triggered as soon as the employer reasonably contemplates it is likely they may need to make dismissals.

 

Raising the prospect of dismissal and re-engagement

This is perhaps the most potentially confusing aspect of the Code. It states that, if at any point the employer intends to opt for dismissal and re-engagement if an agreement can’t be reached, it’s important that they’re clear about it.

However, it goes on to say that raising this prospect should not be done “unreasonably early” as it could be detrimental to attempts to reach agreement. Employers should also not use the threat as a negotiating tactic where they don’t genuinely intend to dismiss if an agreement isn’t reached.

 

Keeping the proposal under review

A key element of the Code is the fact that the employer should keep the proposed changes under review, in particular when it gets to the stage where it’s clear an agreement can’t be reached.

The Code lists the following factors to take into account (although this isn’t exhaustive):

• The objectives they’re seeking to achieve
• The negative consequences of imposing the changes – including reputational risks, damage to workforce relationships, risk of losing employees, potential legal claims and associated costs and management time.
• Whether it may be indirectly discriminatory (where the impact may be greater for those who share a protected characteristic)
• Whether there are any reasonable alternative ways to achieving their objective.

The government says the Code has been designed “to strike the right balance between supporting employers to grow their businesses through a flexible labour market and protecting workers from unfair practices that undermine employment protections”.

Labour don’t think it goes far enough and have already promised that if they win the election, they will introduce greater penalties (although not an outright ban on the practice).

 

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