Dismissals

The current two year qualifying period to bring an ordinary unfair dismissal claim will be repealed.

Implementation status (November 2024)

• Employment Rights Bill

• Awaiting consultation

• Will not come into effect before "Autumn 2026"

Action

• Ensure managers are trained on when unfair dismissal rules apply and the relevant legal considerations i.e. when the new modified process (see below), a fair process under existing principles and the automatic dismissal rules apply.

• Consider what protections may be required to protect business secrets, confidential information and trade connections for key employees who may be more inclined to move to a competitor given greater unfair dismissal protection.

• Follow closely the consultation on employment status when it is published; if worker are attributed the same status as employees for employment law purposes this will significantly increase the risk of unfair dismissal claim.  

In detail

• The existing two year qualifying period to bring an ordinary unfair dismissal claim is removed.

• A provision is included to ensure that employees who have not yet started work but entered into an employment contract do not gain ordinary unfair dismissal protection. Automatic unfair dismissal rules will still apply (e.g. alleged whistleblowing).

Impact

• The two year qualifying period still applies until the ERB reforms are implemented; in some instances it is already the case that no statutory qualifying period applies.

• The government wants to ensure that newly hired workers are not fired without cause or reason and it "will help drive up standards in workplaces". However, the test for a fair dismissal will be modified during an "initial period of employment" in specific circumstances – see below.

• To mitigate the potential rise in legal claims the government has indicated that it will identify ways to signpost and support employees not only in ensuring they have proper recourse if they are unfairly dismissed, but also making clear where bring claims might be unsuccessful.

• The government also hopes to address its concerns that the current system means "people are less inclined to move jobs, posing risks to productivity".

• The right still only applies to employees; but may be extended down the line when the new government progresses its proposals around employment status.                                                                                                                                                                 

The government is seeking to end the "unscrupulous" practice of fire and re-hire. On current drafting, the Bill provides that it will be automatically unfair to dismiss an employee for not agreeing to a variation of their contract or where a variation is proposed to allow for an employer to re-hire the employee or someone else to carry out substantially the same job on a varied contract. There is an exception where an employer can show that the variation of contract was because of "financial difficulties" affecting its ability to carry on the business and it could not have "reasonably avoided" making the variation. Where the exception applies, ordinary unfair dismissal rules will still apply.

Implementation status (November 2024)

• Part of the Employment Rights Bill.

• Further detail expected in regulations (and amendments to the current Code of Practice where it is retained).

• "The majority of reforms will take effect no earlier than 2026".

• There is also a current consultation on increasing the maximum protective award for a failure to comply with the collective consultation rules and introducing a right for employees to apply for interim relief. Additional changes may be made to the Bill by way of amendment.

Action

• Where a fire and re-hire scenario is in contemplation, consider the reputational and employee relations impact, which may be heightened in light of the current proposals. Apply the current Code of Practice on dismissal and re-engagement (and watch out for the potential impact on protective awards, in addition to unfair dismissal compensation, expected January 2025).

• Review and update existing contractual variation clauses and consider their inclusion where not currently used. However, these clauses can be difficult to enforce, particularly for significant changes and in a hostil" scenario.

• In future, proposed changes to terms and conditions will need to be subject to careful planning. Any proposals are likely to be closely scrutinised and may lead to expert evidence on finances being put before an Employment Tribunal. Potentially higher compensation costs for a failure to comply with collective consultation rules, where applicable, will need to be factored in.

• Remain alert to the potentially wider impact of the proposed reforms on changing terms and conditions outside of a typical "fire and re-hire" scenario. Case law will be important in understanding how the new provisions (including the exception) are interpreted.

In detail

• It will become automatically unfair to dismiss an employee where the reason or principal reason for the dismissal is either that:

  • The employer sought to vary the employee's employment contract and the employee did not agree to the variation; or

  • To enable the employer to employ another person or to re-engage the employee under a varied employment contract to carry out substantially the same duties as the employee carried out before being dismissed.

• There is a statutory exception where the dismissal will not be automatically unfair if both the following are satisfied:

  • The reason for the variation was to eliminate, prevent or significantly mitigate the effect of any financial difficulties, which at the time of the dismissal were affecting or were likely in the immediate future to affect the employers ability to carry on the business as a going concern or otherwise to carry on the activities constituting the business; and

  • In all the circumstances the employer could not have reasonably avoided the need to make the variation.

• Where the exception applies, a tribunal will still need to assess whether the dismissal was fair in all the circumstances, with statutory provisions setting out matters to be taken into consideration including whether the employer has consulted with the employee and any trade union or employee representatives on the proposed contractual changes and whether the employer offered the employee anything in return for agreeing to a variation.

• The government has published a consultation on tackling the abuse of the fire and rehire and collective consultation rules which seeks views on increasing the maximum protective award (from 90 up to 180 days or removing the cap altogether) and introducing a right for employees to apply for interim relief where either they have a claim for the protective award or they have a claim for unfair dismissal in a fire and rehire situation. Interim relief is currently only available for whistleblowing and trade union dismissals.

Impact

• The government is seeking to "provide effective remedies" to stop the "unscrupulous" practice of fire and re-hire "while also maintaining that businesses can restructure to remain viable, preserve their workforce and the company when there is genuinely no alternative". However, on the face of the current wording, the Bill would make automatically unfair the dismissal of any employee for refusing to agree to any variation of terms and conditions, express or implied; there does not necessarily need to be a proposal to dismiss with a view to re-hiring another employee.

• The statutory exception is extremely limited. It seems that Employment Tribunals would need to make findings on an employer's financial position, its ability to continue as a going concern and whether the contractual variation could reasonably have been avoided, leading to more complex, lengthy and costly proceedings.

• A Code of Practice came into force on 18 July 2024, providing that fire and re-hire can be used where the employer "has participated in a thorough and open information-sharing and consultation process, as part of which it has genuinely considered any reasonable alternative proposals" but it should be considered "a last resort". Failing to follow the code is not a claim in its own right but can lead to an Employment Tribunal uplifting compensation in other claims (such as unfair dismissal) by up to 25%.

• The government recognises the risk of employers making redundancies as an alternative to changing terms and conditions via fire and rehire "due to light or moderate financial pressure". However, given the longer-term implications to productivity etc., it expects "businesses to avoid making redundancies where possible".

• In addition to the current consultation on strengthening the remedies for breach of the statutory collective consultation obligations, the government has laid an order before parliament providing tribunals the ability to apply an uplift or reduction to any protective award made in fire and re-hire cases where there has been a failure to follow the statutory Code of Practice which came into force in July 2024.  If approved, this order will take effect from 20 January 2025.