Many have spoken of the “unintended consequences” of the Employment Rights Bill. Darren Newman argues even the most reasonable employers could face automatic unfair dismissal if they try to relocate staff and that the Government fundamentally misunderstands the way issues of fire-and-rehire can occur.
The government wants you to believe that firing and rehiring – also known as dismissal and engagement – is a tactic used by poor employers. However, there is one exception: if a business is in a financial crisis.
In 2022, the scandal surrounding P&O Ferries’ decision to fire hundreds of employees brought fire-and-rehire back into the spotlight. The government’s code of practice for fire and hire was introduced last summer. Policymakers were working on the Employment Rights Bill and how to “end”, fire and rehire, as Labour promised.
The government’s failure to understand the implications of the Bill on fire and rehire is evident from a detailed reading of the provisions. It misunderstands the underlying causes of fire and rehire issues.
In order to demonstrate my point, I will use the example of the government’s plan to relocate thousands civil servants to other UK regions.
Relocating employees
The employment contract either allows or does not allow the employer to ask the employee to move. If the contract says “You may have to work anywhere within the UK”, the employee could be informed that their job is moving.
Employees can be asked to move as long as their employer doesn’t breach implied trust and confidence, for example by giving too little notice. They can be fired for refusing to follow a reasonable order.
If, in the employment contract, it is stated that “You may be required to relocate from our Westminster office to another office within a reasonable travel distance”, the employer might, for example, move to Canary Wharf, and the staff would have to make accommodations.
It could not, however, tell them to move to Darlington. What should the employer do if it has decided to relocate in this way?
Seeking agreement
The first step is to ask employees if they agree to move. This would require a change to their contract that places the employment in Darlington instead of London. It is simple if the employee agrees.
Most people will need some convincing – salary, relocation costs or other incentives that an employer may offer. It is possible, however, that some people would prefer to remain in London. These individuals will have an employment contract that guarantees their right to work in London. This cannot be changed unilaterally by their employer.
A lawyer for employment will then advise that if the contract no longer serves its purpose, the employer may terminate it and issue another one, with the desired location written in it.
Almost all employment contracts are terminable by giving the employer notice. The notice is determined by the contract terms, and the minimum notice period (basically one week for every year of service, up to 12 weeks).
The employee may then accept or refuse the new contract offer and move to Darlington, or they can decline and lose their job.
If it gets to that point, the employee will be dismissed, no matter what choice they make. Even if the contract is immediately replaced by a brand new one, even if there has been no gap in employment, this dismissal still stands.
The employee may still claim that the dismissal was unfair, even if he or she continues to work for the employer. The employee would still receive a salary, so compensation is limited. We would therefore expect the majority of unfair dismissal cases to be filed by those who do not want to relocate and now have no job.
In this case, the employer did not intend to terminate his staff. This was not the original plan. It wanted to move everyone to Darlington.
Fairness in the current rules
In a claim for unfair dismissal, the employer has to prove the main reason of the dismissal and that it falls into a category of “potentially fair”.
There are four categories: conduct, capability, redundancy and statutory ban. But the most famous is “some other substantial reasons” (SOSR). We look at the facts that led to the dismissal, not the long-term or overarching objective the employer may have had.
In this example, the employee was fired because he refused to accept a move to Darlington.
It is well-established that refusing to accept new terms and condition falls under the SOSR category.
The employer’s business case and how it reached the decision of dismissal will determine whether the dismissal was fair.
Another important factor is whether or not other employees are on board with the change. It would be reasonable for an employer to claim that if a majority of employees agrees to the change, the few remaining workers cannot stop the entire process. This calculation may be different if the entire workforce rejects the change.
All of these factors are taken into account as part of an overall test to determine whether the dismissal was within the ranges of reasonable responses that were available to the employer. This is a cornerstone of unfair dismissal law.
In our example, we would advise the employer that if they follow a reasonable process of consultation, it is possible that dismissing employees who refused to move was fair.
Employment Rights Bill: Rehire and dismissal
It is clear to me that Employment Rights Bill makes a dismissal under these circumstances automatically unjust. Clause 26 introduces a new basis for automatic unfair dismissal. It states that a dismissal is unfair if it’s because the employee refused to agree to the employer changing the contract of employment.
In our example, it is clear that the employer wanted to change the contract. The employer dismissed the employee for refusing to accept the variation. Only if the employee’s refusal to accept the variation falls under the “financial difficulty” exception can the dismissal be considered fair.
If an employee refuses to move, then the employer is not allowed to dismiss him or her without cause. This employee is entitled to the full amount of compensation for unfair dismissal. The amount of compensation would not be reduced by a “Polkey reduction” to reflect the outcome if the employer acted reasonably.
The employer could also dismiss the employees without obtaining their consent. The employer could announce everyone would be given notice and encourage them to accept new contracts reflecting their new location. It would then not be because the employee refused to accept a change, as they would not have had the option to do so.
There would also be a question of unfair dismissal. Imagine that the consultation by the employer was a model of absolute reasonableness. The unions were extensively consulted on the rationale for the decision and its implications.
What would be the main reason for dismissal? According to the law, the main reason for dismissal would be redundancy. However, the employer might also use SOSR just to make sure.
The Employment Rights Bill says it is unfair to dismiss an individual for refusing to accept a contract variation. It also states that the dismissal will be unfair if the primary reason is . “to allow the employer to hire another person or to reengage the employee under a modified contract of employment, to perform the same duties or substantially the duties as the employee performed before being dismissed.” (Clause 26).
The Bill does not let the employer off if all that is changed in the contract is its location.
Unfavourable?
This is the core problem I see. The advocates of the Bill’s provisions on rehire and fire are thinking about an employer who wants to impose more favourable conditions and terms. The Bill does not specify that the new conditions must be unfair, or less favorable for the dismissal to occur. The Bill does not specify that the change must be related to pay or benefits.
I’ve heard people who support these provisions say that employers are not at risk. By definition, however, the reasonableness or otherwise of an employer’s actions are removed from the equation when a rehire and firing is automatically unfair. Unreasonable employers risk being found guilty of unfair dismissal. This new category of automatically unjust dismissal is aimed at reasonable employers.
What is the employer who wants to move its business to a new location supposed to do when this bill comes into effect? Do they accept that all dismissals are unfair and just budget for that when planning the move? Maybe.
If so, do they think that other employers who might also be considering a change in location should have to shoulder that burden? Do they believe that other employers considering a move to a new location would be unfairly burdened by such a decision?
The Bill doesn’t allow for any other exceptions than financial hardships. I’ve suggested in the past that an amendment including “technical and organisational” reasons would be helpful. This would include any organisational changes that involve a move.
Clause 26 approved
If the government believes that an employer can relocate their business if they have a valid reason, it should consider Amendments 118, proposed by Lord Sharpe, Lord Hunt and Baroness Fox.
The House of Lords Committee has approved Clause 26 as is.
In stating the Government’s stance on the issue, Lord Leong stated: “When the change is necessary and the employee would otherwise be made redundant, for example due to a relocation, or where changes are required to reflect changes in the law, employers will still have the ability to explain these changes to employees.”
“However,” he added, “such changes should always result from meaningful consultation. Both employers and employees need to reach a mutual agreement that allows both parties to assess and understand the impact of proposed changes. Open dialogue is key.”
The government insists that employers and employees must reach a “mutual understanding” in order to secure a move or (oddly), “to reflect changes in the law”.
No further information was provided on what an employer should do in the event that a compromise cannot be reached. The government seems to be planning to force this measure without compromise, and deal with its consequences later.
The debate surrounding the Employment Rights Bill is too vague. It has failed to grasp what the Bill says. Some of the measures in the Bill may be put on hold while the consultations on the regulations needed to implement them begin. However, provisions such as the ban on “fire and rehire” could be implemented by Christmas. I hope that the government will take a hard look at what “fire and hire” really means in the remaining weeks of the Bill’s passing.
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