In just over a month, employers will risk having to pay higher protective awards for collective redundancy consultation breaches where they also unreasonably fail to follow the Code of Practice on Dismissal and Re-engagement. This is a pre-cursor to wider reforms anticipated for 2026, that would make consultation breaches even more costly and extend the consultation process for multi-site and large-scale dismissals.

Background

Employment Tribunals can already make a protective award of up to 90 days’ uncapped pay per affected employee against employers who breach collective dismissal consultation requirements (under s.188 of TULRCA). The award level will depend on whether any meaningful consultation has taken place and, where there has been no consultation whatsoever, the starting point will usually be the full 90 days’ pay.

Employers will soon have to factor in the risk of increased protective awards for breaching the Code of Practice on Dismissal and Re-engagement. The Code will apply if they propose changes to employment terms that may lead to the dismissal and re-engagement of employees (ie using “fire and rehire”), regardless of the numbers affected, and provides for a prescriptive consultation process with workers to reach an agreed outcome. Where this involves 20 or more dismissals at one establishment within 90 days, employers will have to comply with both s.188 requirements and Code advice.

New uplift of up to 25% to protective awards

Tribunals can already uplift or reduce compensation for particular claims (including unfair dismissal and discrimination claims) by up to 25% for a party’s unreasonable failure to comply with the Code or a relevant statutory code of practice. From 20 January 2025, protective awards will be added to this list, meaning that employers who unreasonably fail to follow the Code, alongside not complying with TULRCA, risk being ordered to pay a higher protective award of up to 112.5 days’ (uncapped) pay per affected employee. This could amount to a significant extra liability for a group of employees.

More costly and restrictive changes in 2026

The Government is proposing further changes under the Employment Rights Bill to deter employers from breaching and abusing the rules, and from buying out employees’ consultation rights. Some changes are confirmed, but others concerning remedies are still to be clarified following a recent consultation.

These changes are:

• requiring employers to collectively consult where 20 or more dismissals are proposed across an entire business rather than where they are proposed “at one establishment”;
• clamping down on the use of “fire and rehire” by deeming dismissals automatically unfair unless financial difficulties may lead to the demise of a business and the change was unavoidable;
• possibly increasing the protective award cap from 90 to 180 days’ pay per affected employee, or removing it entirely and leaving the Tribunal to decide on the amount of the award;
• possibly introducing interim relief as a remedy for protective award and “fire and rehire” unfair dismissal claims (so that employees would be reinstated or paid until their claims are litigated); and
• possibly doubling the minimum consultation period where 100 or more dismissals are proposed from 45 to 90 days, which was the law pre-April 2013 (the Government will consult on this change next year).

These changes would complicate life for employers and make breaches more costly as even employees who agree to waive their consultation rights would be likely to demand higher settlement sums in return.

What next for employers?

Employers should continue to use “fire and rehire” with extreme caution, as an option of last resort, in line with the Code of Practice. Where this meets TULRCA thresholds, they should be mindful of the risk of higher protective awards from 20 January.

Other changes won’t take effect until 2026 and so there is still time to prepare. However, with the prospect of an increase to, or removal of, the protective award cap, employers will want to think carefully about their approach.

Although claims for a breach of s.188 requirements can’t technically be waived under a settlement agreement, many employers still seek to “buy out” these rights with other contractual safeguards. “Buying out” rights should still be an option under the Bill, but it could be more expensive, so a cost benefit analysis of complying with the rules (whether in full or partially) and breaching them will be needed on a case-by-case basis. This should include an evaluation of wider risk exposure. For example, a failure to collectively consult could increase the risk of unfair dismissal claims (which can be brought from day 1 under the Bill) and harm employee relations.

Other action areas will include implementing systems to track redundancy dismissals across sites and reviewing redundancy consultation processes. More on this to follow next year when the detail is unveiled…

[View source.]