Tribunals Can Increase Compensation

From 20 January 2025, tribunals will have the power to increase protective awards by up to 25% when employers fail to follow their collective consultation obligations and the statutory Code of Practice on Dismissal and Re-engagement. For more on how tribunals can increase compensation, see our detailed guidance.

Statutory Code of Practice on Dismissal and Re-engagement

The statutory Code of Practice on Dismissal and Re-engagement (the “Code”) has applied since 18 July 2024. It allows tribunals to adjust compensation by up to 25% where a party has unreasonably failed to follow it.

The Code applies when an employer considers dismissing employees and re-engaging them on new terms. It requires employers to:

• Explore alternatives to dismissal through meaningful consultation with employees or their representatives.
• Avoid threatening dismissal as a negotiating tactic to force agreement to new terms.
• Use dismissal and re-engagement only as a “last resort”.

The Code will be taken into account by tribunals in any claims arising from fire and rehire. See also our tribunals given power outline.

Collective Consultation

The definition of redundancy is broad enough to cover dismissal and re-engagement as part of changing terms and conditions. This may trigger collective consultation obligations under TULR(C)A 1992, depending on the number of employees affected.

Increase in Unfair Dismissal Awards

When an employer terminates an employee’s existing contract and issues new terms, the employee may refuse the new offer, leave, and bring an unfair dismissal claim. If successful, the tribunal can increase compensation by up to 25% where the employer has unreasonably failed to follow the Code.

Increase in Protective Awards

If an organisation fails to comply with collective consultation obligations, tribunals may award up to 90 days’ pay per affected employee. From 20 January 2025, tribunals can increase protective awards by up to 25% if the employer has unreasonably failed to follow the Code (or any other relevant Code of Practice). Conversely, awards may be reduced by up to 25% if employees unreasonably fail to follow the Code. For further details on how tribunals can increase compensation, refer to our internal guidance.

Employment Rights Bill

The forthcoming Employment Rights Bill will further restrict employers’ ability to change terms and conditions without agreement. As currently drafted, any employee dismissed for refusing new contractual terms can argue automatic unfair dismissal unless the employer can:

• Demonstrate financial necessity that threatened business viability.
• Show no alternative existed to avoid dismissal.

Once enacted, this will render fire and rehire extremely hazardous for employers.

Article by Irwin Mitchell LLP