There is a lot to say about the Employment Rights Bill which was introduced in Parliament earlier today.  In many ways it really is transformative – its also long and detailed. My plan is not to write one big summary of it (dull) but to highlight individual reforms that I think are interesting or important. 

The provisions on fire and rehire frankly go much further than I had expected. Here is what Labour’s Plan to Make Work Pay said before the election: 

Labour will end the scourges of ‘fire and rehire’ and ‘fire and replace’ that leave working people at the mercy of bullying threats. We will reform the law to provide effective remedies against abuse and replace the inadequate statutory code brought in by the Government, with a strengthened code of practice.

That all sounded a bit soft to me. Like they weren’t really going to ban the practice, just strengthen the Code of Practice (the current one is very vanilla) and limit ‘abuse’. 

What we actually get is a provision – inserting a new S.104I into the Employment Rights Act – that says that it is unfair to dismiss an employee if the principal reason for dismissal is either that the employee refused to agree to a variation of contract sought by the employer or to enable the employer to recruit another person (or rehire the employee) under new terms but with substantially the same duties. 

That is essentially a blanket ban on the practice of fire and rehire / dismissal and reengagement. It is (will be) automatically unfair to dismiss an employee for refusing to agree to a variation in contract. Once you have agreed terms with an employee, you are stuck with them. You cannot force through a change. Nor can you skip the proposed variation and just replace one employee with another on worse terms. Both practices will be automatically unfair.

There is an exception. The Government says in a ‘Next Steps’ document that businesses will be able to ‘restructure to remain viable’ but as the Bill is drafted strikes me that this is a very narrow exception. 

Under the new provision, for a dismissal to be lawful the employer has to show that it was in ‘financial difficulties’ (no other kind will do) that would affect its ability to carry on the business. It must also show that it could not reasonably have avoided the need to make the variation. As I read it, the variation needs to be a last resort in the face of an existential threat to the employer’s business. That is a major shift from the current position where the decision need only be within the range of reasonable responses. I’m sure lots of employers will want to argue that their particular case meets the kind of ‘financial difficulties’ that are envisaged by the Bill, but I really think the exception is intended to be a very narrow one. I would not like to be the lawyer advising an employer that its situation allowed for dismissal and reengagement.

The exception is so narrow that I think many employers, in the private sector at least, will seek a way around it. One tactic might be an increasing reliance on variation clauses. These can allow an employer to vary a contract without seeking an employee’s agreement because that agreement is essentially baked into the contract itself. They would have to be careful not to operate these clauses in a way that undermined trust and confidence, as that could lead to a constructive dismissal claim. But otherwise the case law suggests that a clearly worded variation clause can be relied on even for changes that are detrimental to the employee. 

Before employment lawyers start brushing up their model variation clauses, however, I suspect that as the Bill goes through Parliament there will be some debate as to whether an amendment is needed to close this loophole. But even if that doesn’t happen, this is still a significant new right that will have a big impact on how employers approach restructuring and redundancy. 

There may be more to come. The Next Steps document says:

As key remedies to end this practice, we are committed to consult on lifting the cap of the protective award if an employer is found to not have properly followed the collective redundancy process as well as what role interim relief could play in protecting workers in these situations. 

Neither of these measures are in the bill itself as far as I can see. instead they are matters that may be consulted on separately. Interim relief – currently used mainly in whistleblowing cases – allows a hearing at very short notice at which the Tribunal can issue a ‘continuation of contract order’ to ensure that the employee continues to be paid while the matter is litigated. I can see why the Government might want to extend it to situations where employees are being threatened with dismissal unless they agree new terms.

But lifting the cap on the protective award seems an odd idea. This is the sum paid to employees who are dismissed when the employer has not complied with its collective consultation obligations under the Trade Union Reform and Employment Rights (Consolidation) Act 1992. It is currently set at a maximum of 90 days’ pay and that is taken as the starting point for any calculation – with the award being reduced to reflect the extent to which the employer has engaged in consultation. Removing the 90-day cap makes no sense to me because Tribunals would have no benchmark to use in calculating the award. It is punitive in nature and not based on any losses the employee might have suffered.  Still, if the Government wants to consult on that we can all weigh in when it does so. 

There will be a lot of debate following the Bill’s publication about how much the Government has watered down its proposals or caved in to the business lobby. But let’s be clear. On the issue of fire and rehire this is a big win for trade unions who have long opposed the practice. To all intents and purposes, the Employment Rights Bill makes fire and rehire unlawful.