Code of Practice on Dismissal and Re-Engagement

Lord Offord of Garvel Excerpts

Monday 25th March 2024 Lords Chamber

Moved by

[Lord Offord of Garvel]

That the draft Code laid before the House on 19 February be approved.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Business and Trade (Lord Offord of Garvel) (Con)]

My Lords, this code of practice, which I will refer to as “the code” for the remainder of this debate, will give legal force to accepted standards about how employers should act when seeking to change employees’ terms and conditions.

The purpose of the code is to ensure that dismissal and re-engagement is only ever used as an option of last resort. The code also seeks to ensure that, where an employer wants to make changes to an employee’s terms and conditions, the employer engages in meaningful consultation with a view to reaching agreement with employees or their representatives in good faith. Employment tribunals will have the power to apply an uplift of up to 25% to an employee’s compensation if an employer unreasonably fails to comply with the code where it applies.

Between January and April 2023, the Government consulted on a draft code, enabling trade unions, employers and other interested parties to contribute their views. In accordance with the Trade Union and Labour Relations (Consolidation) Act 1992, the Secretary of State also consulted ACAS on a draft statutory code before publishing it. Careful consideration was given to those views and, as a result, changes were made to the draft code. An updated draft code was laid in Parliament on 19 February.

The Government have been clear that threats of dismissal and re-engagement should not be used as a negotiation tactic by employers. When the Covid-19 pandemic led to cases of dismissal and re-engagement, the Government asked ACAS to conduct an evidence-gathering exercise to help us better understand the issue. That report was published in June 2021. The Government then went further and asked ACAS to produce new guidance to ensure that employers were clear on their responsibilities when making changes to employment contracts. That guidance was published in November 2021. ACAS has also published guidance for employees. The Government are now going even further to address the use of dismissal and re-engagement by bringing forward the code, aiming to ensure that this practice is only ever used as a last resort and that employees are properly consulted and fairly treated.

In all these discussions, we must balance protections for employees with business flexibility. There have been calls to ban the practice of dismissal and re-engagement and suggestions to legislate to restrict its use in a manner that amounts to an effective ban. This Government believe that we must preserve companies’ flexibility to manage their workforce in times of crisis. It is, therefore, right that we have mechanisms to enable us to save as many jobs as possible. The code is a proportionate response to dealing with controversial “fire and rehire” practices, balancing protections for employees with business flexibility. I know that the vast majority of employers want to do the right thing by their employees. For most employers, decisions to change terms and conditions are not taken lightly, nor is the choice to let members of their workforce go.

The UK is a great place to start and grow a business and has a strong labour market. Its success is underpinned by balancing labour market flexibility and worker protections. It is vital that we continue to strike the right balance, while clamping down on poor practice. If this code is approved by Parliament, it will be issued and brought into effect by the Secretary of State in accordance with the procedure set out in Section 204 of the 1992 Act. The Government intend for the code to be in effect by the summer.

I am aware that a regret amendment has been tabled by the noble Lord, Lord Woodley. I will respond to it later in the debate. I hope that your Lordships will support the code. I beg to move.

Amendment to the Motion

Moved by

--- Later in debate ---

[Lord Offord of Garvel (Con)]

I thank all noble Lords who have participated in this debate. I hope to clarify some key points that were mentioned. I will first turn to the regret amendment tabled by the noble Lord, Lord Woodley. I know that the noble Lord is a champion of protecting and enhancing worker’ rights, but the Government do not believe that his suggested amendment to the code would be appropriate.

The amendment suggests adding measures from his Private Member’s Bill on dismissal and re-engagement and from a report from the International Labour Organization. The measures contained in the noble Lord’s Bill would, in effect, ban dismissal and re-engagement. That is because the Bill would remove the ground of “some other substantial reason” for an employer to justify a dismissal in a dismissal and re-engagement scenario. Almost all cases of dismissal and re-engagement rely on this ground as potentially a fair reason. Therefore, this would, in effect, ban the use of dismissal and re-engagement.

As I said earlier, it would not be appropriate to impose an outright ban on dismissal and re-engagement. There are some situations in which dismissal and re-engagement have a valid role. Companies that are, for example, going through difficult economic times or a change in their business model may need the flexibility to use this option to save as many jobs as possible.

In regard to the International Labour Organization’s Committee on Freedom of Association’s definitive report 404, as raised by the noble Lord, Lord Hendy, I would like to clarify that the UK is committed to all ILO conventions that we have ratified, including Convention 87 on the freedom of association and protection of the right to organise, and Convention 98 on the right to organise and collective bargaining. We are carefully considering the Committee on Freedom of Association’s recommendations and will provide information to the ILO in due course.

Turning to the point made by the noble Lord, Lord Woodley, about P&O Ferries, echoed by the noble Lords, Lord Fox and Lord Leong, as we said at the time, the treatment of staff by P&O Ferries was disgraceful and was called out as such from this Dispatch Box. It fell short of the high standards we expect in this country, and which most businesses uphold. The company deliberately chose to ignore statutory consultation requirements. P&O Ferries broke the law by dismissing its workers with no warning, having made prior arrangements to bring in agency staff to replace them. What P&O Ferries did was “fire”, and not “fire and rehire”. The company dismissed staff with no notice or consultation. I understand that it was not seeking to renegotiate its employees’ terms and conditions, so the code would not have applied.

The noble Lord said that some of those employees were fired and rehired. I thank him for bringing that to my attention. I am not familiar with the detail of their personal circumstances, but speaking generally, if an employer seeks to renegotiate terms and expects that it may dismiss an employee and rehire them or another employee to effect the changes, then it would be bound by the code. The Government have taken action in response to what P&O Ferries did. This includes legislating through the Seafarers’ Wages Act 2023 and the ongoing Insolvency Service civil investigation.

A number of noble Lords raised the deterrent effect of the code and, as I said, the code of practice is a proportionate response, balancing protections for employees with business flexibility. An employment tribunal could increase an employee’s compensation by up to 25% where an employer unreasonably fails to comply with the code. The Government will bring forward legislation so that the 25% compensation uplift also applies to the protective award, where employers have not complied with the collective consultation obligations and have unreasonably failed to comply with the code. The noble Lord, Lord Woodley, asked for an update on this legislative change that will increase the deterrent effect of the code. Subject to parliamentary time, the Government intend to bring this forward this summer.

The noble Lord, Lord Leong, asked when the code would apply to an employee. The code will apply from the first day of an employee’s employment, though it will be subject to qualifying periods in individual claims.

Having heard the debate, I think there is perhaps just a philosophical difference on how we proceed in these matters. This Government believe that our workforce and labour laws are in an advanced and sophisticated state. We have record employment in this country: 33 million out of a population of 66 million working. We have just increased the national minimum wage at twice the rate of inflation over the last 25 years, and only 5% of our workforce is on the national minimum wage. Now that they have reached that level, they can be considered to have been taken out of low pay if that is defined as two-thirds of median hourly wages. They are now at that level, and therefore, within our labour force, our laws are working flexibly.

In my role as Minister for Exports, I travel the length and breadth of the country, and I meet companies of all shapes and sizes. The one observation I will make to this House is that post Covid, there has been a reassessment of the value of labour in this country. The labour force is now one of the most valuable parts of any company’s make-up and capability. There are labour shortages, and good labour is scarce. I would argue, perhaps, that there has never been a better time to be an employee, because of the ability to receive higher wages for good skills that are at a premium, and companies want to have those employees within their businesses. In this situation, and thinking as an employer, I can imagine that it would be only in exceptional circumstances, where we were trying to keep our employees together and keep our company on the road, that we would have such a discussion. It would be absolutely as a last resort.

To take the point raised by the noble Lord, Lord Browne, about there being no teeth and waiting times in the tribunal system, I acknowledge that there are perhaps backlogs in that system, but this is a process that no employer wishes to get caught up in, considering the amount of time and cost it would take when we want to have our employees happy and working and producing effectively for the benefit of all the stakeholders within the company. Just as a matter of philosophy, we would say that this is an exceptional situation. The TUC says that it estimates that only 3% of employers have ever gone down the road of fire and hire. As we said in the code quite clearly, it is not toIn conclusion, I would argue that the Government are taking robust and appropriate action in this area. A statutory code of practice is a proportionate response to dealing with controversial fire-and-rehire practices. The code will address this practice, aiming to ensure it is only ever used as a last resort, and that employees are properly consulted and treated fairly. It clarifies and gives legal force to accepted standards about how employers should behave when seeking to change employees’ terms and conditions. Subject to parliamentary approval, the code will be in force later this summer. The House should be left in no doubt that the Government will always continue to stand behind workers and stamp out unscrupulous practices when they occur.

[Lord Browne of Ladyton (Lab)]

Does the Minister have a response to my question about the coincidence of the Government consulting on imposing fees on those who seek to apply to an employment tribunal in the face of the case of UNISON v Lord Chancellor, where fees were held to be unlawful because they impeded access to justice? This issue was not addressed in the letter that the noble Lord, Lord Johnson of Lainston, sent to me. It was in my speech at Second Reading. Do the Government have a position on that? Is it just a coincidence that this is happening at the same time as employment tribunals are being given the ability to impose an extra 25% of financial penalties on employers who fire and rehire as part of the code of practice?

[Lord Offord of Garvel (Con)]

As the noble Lord knows, one can read Hansard as well as one can, but not being in the Chamber to hear his eloquent argument of the case makes me slightly deficient in this response. I am disappointed that my noble friend was unable to write more comprehensively on the matter. Perhaps I can follow up with a second letter in that regard.

[Lord Woodley (Lab)]

My Lords, this has been a lively, interesting and, indeed, productive debate. I just want to say one thing to the Minister. In a previous life, I was the leader of Britain’s largest trade union, and I spent more time fighting for companies and for company survivals, and indeed to make sure that they had the right investment to protect jobs and increase jobs in our country, than I ever did fighting against them. That is why I take a little offence that the Minister suggested that my amendment indicates that fire and rehire is banned in all cases. That is the worst case of selective deafness that I have heard from two Ministers, to be quite honest. I point out to the Minister that it does not say that. It makes it absolutely clear that if we are in a situation where the very foundation of the company depends on these actions being taken, not only should they be carried out but we would support that.

However, with regard to where we are, I do not see anything reasonable in the code of conduct, as indeed we have all said here. The Minister also mentioned that—ironically—a TUC investigation into these things found that only 3% of employers were using fire and rehire as a tactic. I said this in the previous debate: 3% across all employers in this country means 38,800 employers. This is not chicken feed; it is big business. It is a pandemic that is right across our country and it will only get worse if we do not legislate to stop it. Again, it has been very interesting that, not only during my previous debate but today on this amendment, not a single speaker has spoken in favour of the code of conduct, never mind anything else, and that includes on the Tory side of this House.

I therefore regret that the Minister’s response is not really doing anything to remove those concerns that we have all registered here about this code of practice. It is toothless, and it does not give the protection and decent compensation that workers who are being exploited deserve. However, as I am sure your Lordships now realise, I do not intend to divide the House on this matter, so I beg leave to withdraw.