What happened

The government published a draft statutory Code of Practice (the Code) on dismissal and re-engagement in January 2023. It has now published the final version of the Code, which is shorter and clearer and will be easier for employers to follow.

The main message of the Code has not changed. Employers who want to change employees’ contracts should consult employees or their representatives and take all reasonable steps to explore alternatives to dismissal before dismissing and re-engaging employees on new terms. The Code applies regardless of the number of employees affected or an employer’s reasons for changing terms and conditions.

Informing and consulting

Employers should view dismissal and re-engagement as a last resort if it has not been possible to agree changes with employees. They should consult employee about the changes in good faith for as long as reasonably possible, with a view to reaching agreement. This will involve:

• Deciding who to consult in the absence of a recognised trade union. This could be existing employee representatives, representatives chosen for the purpose or individual employees. What is reasonable will depend on all the circumstances and whether there are other legal obligations in play, such as collective consultation requirements.
• Providing information to the relevant employees or representatives. Employers should provide as much information about the changes as reasonably possible, ideally in writing. This could include information about the reasons for the proposals, who is affected, when changes will be introduced and any other options the employer has considered. Again, what is reasonable will depend on the circumstances. A shorter or less extensive consultation may be reasonable if the changes are in response to a financial crisis, for example. 
• Considering employee views and any reasonable alternative proposals genuinely and with a view to reaching agreement. Employers should re-examine their proposals in light of employee views before deciding how to proceed if it is not possible to reach agreement.
• Not raising the prospect of dismissing and re-engaging staff at an unreasonably early stage, or as a way of putting pressure on employees if the employer is not in fact envisaging dismissals. The Code says that employers should contact ACAS for advice before raising the prospect of dismissing and re-engaging, although this is not a legal requirement.

Reaching a decision

After an employer has informed and consulted employees or their representatives and genuinely considered any alternative proposals, it can decide how to proceed if employees have not agreed to the proposed changes.

If the employer decides to dismiss and re-engage, having considered the possible negative consequences, it should:

• Give employees statutory or contractual notice as appropriate and consider whether it would be possible to give employees additional time to make arrangements that would allow them to accommodate the change.
• Consider whether it can offer employees practical support such as relocation assistance or career coaching, or introduce changes on a phased basis.
• Invite feedback about the changes once they have been made and consider whether it could take further steps to mitigate any negative impact.

Failing to follow the Code

There is no free-standing legal claim employees can bring against an employer that does not follow the Code. However, if employees bring successful claims arising from dismissal and re-engagement – such as unfair dismissal claims – tribunals can increase any compensation awarded by up to 25% if an employer has failed to follow Code.

Next steps

Parliament must approve the Code before it takes effect. Once this happens, the government intends to bring the Code into force “later in the summer.”