Tribunals given power to increase compensation where employers have not followed statutory codes of practice

Statutory Code of Practice on Dismissal and Re-engagement

The statutory Code of Practice on Dismissal and Re-engagement (the ‘Code’) has been in place since 18 July 2024. It states that tribunals may adjust compensation by up to 25% where one party has unreasonably failed to follow it, but the legislation required to underpin that has only recently been drafted and is due to come into force in the new year.

The Code applies when an employer is considering dismissing employees and re-engaging them on new terms and conditions. It states that employers should:

• Take all reasonable steps to explore alternatives to dismissal. This includes engaging in meaningful consultation to try and reach agreement with employees and/or their representatives. 
• Not threaten to dismiss staff as a negotiating tactic in an attempt to get them to agree to change their terms and conditions. 
• Only dismiss and offer to re-engage staff as a “last resort”.

The Code will be taken into account by a tribunal in relation to any claims arising from fire and rehire. 

Collective consultation

The definition of redundancy is wide enough to cover dismissal and re-engagement as part of a process to change terms and conditions of employment. This means that if an employer proposes to dismiss employees and re-engage them on new terms, it may trigger collective consultation obligations under TULR(C)A 1992, depending on the number of employees involved. 

Increase in unfair dismissal awards

Where the employer terminates an employee's existing contract and issues new contractual terms, they can refuse to accept the new offer of employment, leave, and then bring a claim for unfair dismissal. If their claim is successful, the tribunal will be able to increase their compensation by up to 25% if their employer has unreasonably failed to follow the Code. 

Increase in protective awards

If an organisation fails to comply with their collective consultation obligations the tribunal may also order them to pay a protective award of up to 90 days' pay to each employee affected. From 20 January 2025, tribunals will be able to increase this by up to 25%, if the employer has unreasonably failed to follow the Code (or any other relevant Code of Practice). The tribunal will also be able to reduce the compensation by up to 25% if it is the employee who has failed to follow the Code. 

Employment Rights Bill

More radical change is coming. The Employment Rights Bill will make it even more difficult for employers to change the terms and conditions of their staff without agreement. As currently drafted, any employee who is dismissed because they have refused to accept changes to their contractal terms will be able to successfully argue that they have been automatically unfairly dismissed unless:

• The employer can show that it had to make to changes because it was in financial difficulties that affected its ability to carry on in business: and  
• Demonstrate there was no other way of avoiding the situation. 

Once enacted, this will make fire and re-hire extremely hazardous. 

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