Contact
Employment

Publish date

19 December 2024

Dismissal and re-engagement: uplifts to apply to protective awards from January 2025

As of July 2024 employers carrying out such an exercise must follow the Code of Practice on Dismissal and Re-engagement (Code).

A failure to follow the Code could lead to compensation for any resulting unfair dismissal being uplifted.  But the uplift does not cover any ‘protective award’ made in connection with such dismissals.  The Labour Government has sought to change this.  As of 20 January 2025, this position is reversed.

This increases the risk for any employer undertaking a dismissal and re-engagement exercise.  We explain these concepts and the changes below.

Dismissal and re-engagement

Dismissal and re-engagement is a process whereby an employer wishes to change an employee’s terms of their contract and cannot reach agreement with the employee.  So in order to  make the change, the employer essentially “fires” the employee and offers them reinstatement on new contractual terms, which are often detrimental to the employee.

The Code sets out employers’ responsibilities when trying to change terms in this way and seeks to ensure dismissal and re-engagement is only used as a last resort.

If an employee successfully claims unfair dismissal resulting from a dismissal and re-engagement exercise, and the tribunal finds that the employer failed to follow the Code, an uplift of up to 25% can be applied to any compensation awarded.

Protective awards

Protective awards are a form of compensation awarded to employees where an employer has failed to comply with their duty to inform and consult in a collective consultation process.

Collective consultation is required where an employer proposes to dismiss 20 or more employees within a 90 day period and the reason for the dismissals does not relate to the individual. This covers redundancy and dismissal and re-engagement scenarios.

Where collective consultation is required, this requires the employer to elect and inform appropriate representatives of the affected employees about the proposals.  The employer must then consult regarding whether the dismissals can be avoided, reducing the number of employees at risk of dismissal and mitigating the impact of any dismissals on employees.

The protective award amount is a maximum of 90 days gross pay per affected employee, which is generally seen as quite penal as it does not easily relate to actual losses suffered by the employees as a result of the failure.

The change

As things stand, the 25% uplift for failure to follow the Code does not apply to any protective award made. This will change from 20 January 2025 and employers who do not follow the Code can expect to be ordered by a Tribunal to pay up to a 25% increase on the protective award.  So worst case scenario is a 25% uplift on an award of 90 days gross pay per employee.

The future

Dismissal and re-engagement is controversial with some, who see it as a heavy-handed means by which an employer can unilaterally change terms of employment.  Others see it as an essential tool to implement changes to replace terms which no longer match the requirements of the business.

The Employment Rights Bill (ERB) will almost entirely ban the practice by making it automatically unfair to dismiss an employee if they refuse to vary the terms of their employment.  Only in exceptional circumstances, where an employer can show they were acting in response to financial difficulties which affect the ability of the business to continue as a going concern, might dismissal and re-engagement be justified. The provisions of the ERB are expected to pass in law no earlier than Autumn 2026, so still some way off.

In the meantime employers can still use dismissal and re-engagement, but must follow the Code in order to avoid the risk of a 25% uplift to any compensation later awarded, if a dismissal is found to be unfair.

Heathervale House reception

Keep up to date with our newsletters and events

icon_bluestone98