P&O Ferries scandal: Will a statutory "fire and rehire" code prevent a repeat?

Author: Darren Newman

Darren Newman

The Government has said that it intends to publish a new statutory code of practice on "fire and rehire". Consultant editor Darren Newman asks whether the code would be sufficient to clamp down on unscrupulous employers that want to impose new terms and conditions on staff through dismissal and reengagement.

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With another Queen's Speech giving no indication of a forthcoming Employment Bill, it is clear that this Government is better at proposing changes to employment law than actually implementing them.

Changes to the right to request flexible working, increased protection against redundancy for those returning from maternity or shared parental leave, and a right to (unpaid) carer's leave all seem to have been put on the back burner.

So the promise to do something to prevent a recurrence of the situation in which P&O made hundreds of staff redundant without even a pretence of consultation is something to be treated with caution.

Code of practice rather than legislation

The measures announced by the Government at the end of March 2022 do not depend on the introduction of new legislation. Instead, labour markets minister Paul Scully announced that the Government intends to introduce a new statutory code of practice.

This is something that the Government has the power to do under s.203 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A). Under s.204, the Secretary of State must consult Acas before preparing a draft code, which may be amended after further consultations. The code can be issued once it has been approved by both Houses of Parliament.

A statutory code does have some legal effect. Tribunals must take it into account when it is relevant to a question that they have to determine. If the code states that certain practices are unreasonable, a tribunal would have to take that into account when determining an unfair dismissal claim.

"Fair, transparent and meaningful" consultation

However, it seems that the aim of the proposed code is simply to provide "greater clarity for employers". The press release accompanying the announcement says that the code will "detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms".

Of course, we already know this. Fair, transparent and meaningful consultation is a requirement of a collective redundancy exercise. The consultation must be carried out with a view to reaching agreement with the employee representatives. Moreover, the redundancy proposals must still be at a formative stage so that there is a genuine chance that the consultation will find ways of avoiding, or reducing the need for, redundancies.

At an individual level, a redundancy dismissal is highly likely to be unfair if the employer does not consult the employee before the final selection is made.

If a clear legal requirement backed by decades of case law did not deter P&O, it is difficult to see what difference a code of practice would have made.

P&O's actions in sacking 800 employees in one fell swoop did not spring from any lack of clarity about what the law requires. The company knew that it was legally obliged to consult representatives before making so many people redundant, but simply decided not to do so.

If a clear legal requirement backed by decades of case law did not deter P&O, it is difficult to see what difference a code of practice would have made.

Potential 25% compensation uplift?

The Government claims that an employer acting in breach of the code of practice would face an uplift of up to 25% in the compensation awarded to an employee. I am not sure that is true - at least not as the law is currently drafted.

Under s.207A(4) of TULR(C)A, the uplift applies only when the code of practice that is breached relates "exclusively or primarily to procedure for the resolution of disputes" [sic].

I am not sure that a code aimed at guiding employers through a fair redundancy process meets that requirement. However, I have always thought the same about the "Acas code of practice on disciplinary and grievance procedures". A disciplinary procedure is not really aimed at resolving a dispute but the 25% uplift is regularly applied in relation to breaches of that code.

Let us accept then that a failure to comply with this new code of practice would lead to an increase in compensation by as much as 25%. That would primarily affect unfair dismissal compensation - it would not extend to the protective award for a failure to consult representatives because that provision is not one of those listed by TULR(C)A as attracting an uplift.

Since unfair dismissal compensation is often very low or even non-existent when there has simply been a failure to consult, a 25% increase in compensation will not be much of a deterrent.

Range of reasonable responses

That brings us back to the benefits of a code that does more than just repeat what we already know. Since tribunals are bound to take a statutory code of practice into account when deciding cases, a strong code could shift the dial in terms of what is and is not reasonable.

In announcing the new code, the Government referred to guidance issued by Acas at the end of 2021, which told employers that "fire and rehire" should be an option of last resort. With due respect to Acas, that is not quite what the law says.

The question a tribunal asks is whether the employer's decision to go down that route was within the range of reasonable responses. That does not mean that it must be the only remaining option available to the employer - indeed in Garside and Laycock Ltd v Booth [2011] IRLR 735 EAT, the Employment Appeal Tribunal emphasised that there is no such rule.

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The Acas guidance does not alter the legal position - but a statutory code of practice could. If the code specifically provides that employers should dismiss only in circumstances in which there is effectively no other course open to them, that could significantly raise the bar and make it easier for tribunals to find that an employer's decision to dismiss was unfair.

Risk of reputational damage

That would not prevent another P&O scenario, which in any event was about straightforward redundancies rather than an attempt to force employees to accept less favourable terms and conditions.

Most employers would not want to follow P&O's example anyway. Quite apart from the risk of a public backlash - which in P&O's case probably exceeded whatever negative publicity they had been prepared for - most employers instinctively prefer to comply with employment law rather than act in flagrant disregard of it.

Meaningful change

Ultimately, a code of practice that simply restates well understood principles is probably not worth the effort.

However, a new code that says something meaningful about when it is reasonable for an employer to make large-scale redundancies or choose to impose new terms and conditions through dismissal and reengagement would be a significant development.

Will that happen? Perhaps. It would not take up much parliamentary time to achieve, but it would require genuine political commitment. On balance, I suspect that a cosmetic code that makes next to no real difference is the more likely outcome.