Dismissal and re-engagement used to be one of those things we discussed at employment law seminars but nobody actually did. The law says that employers can, if they fail to get agreement from employees, impose new terms and conditions by sacking them and immediately offering them contracts under the new terms. It sounds simple enough but the law says that something as important as an employment contract cannot just be changed or terminated on a whim. The employer has to show that it has consulted with its employees, has exhausted all alternatives and, above all, has a compelling business reason for the changes.
Dismissal and re-engagement is very easy to get wrong. Even organisations with good legal advice can find themselves in trouble. If it is not properly handled, employers run the risk of claims for unfair dismissal and breach of contract. There is, of course, also the risk that none of the employees agree to re-engagement and the employer finds itself without a workforce. (There’s a good summary of the legal position and options for employers here.)
Such complexities made dismissal and re-engagement a fascinating subject for abstract discussions on employment law courses but discouraged all except a few gung-ho or desperate employers from actually doing it.
Until now, that is. Earlier this week, Shropshire County Council sent dismissal letters to its entire workforce, offering to re-hire those who agree to a 5.4 percent pay cut. Southampton City Council is reported to be considering something similar. Last September, Birmingham warned its staff that it might dismiss and re-engage them if they did not agree to pay cuts.
A couple of employment lawyers I spoke to recently told me that they are getting a lot of enquiries about dismissal and re-engagement from their public sector clients. So far, only a few employers have done it but a lot more, it seems, may be actively considering it. In the past year or so, a course of action that was once rare has become a lot more common.
It is not really surprising that unprecedented pressure should lead to unprecedented measures. For the past decade or so, most public sector organisations have enjoyed real-terms budget increases. They have, for the most part, been able to maintain their terms and conditions and offer above-inflation pay increases.
With a few exceptions, public sector managers have avoided confrontation with their unions. All too often, managers would ignore contentious issues or, in the worst cases, simply capitulate. In 2009, the CIPD’s John Philpott wrote this scathing appraisal of public sector management and its handling of trade unions:
What really stands in the way of making public-sector workplaces more productive are too many managers who aren’t up to the job and a centralised system of employment relations that enables powerful trade unions and other professional producer interests to squeeze as much as they can from taxpayers’ money. Failure to confront these barriers to improved public-sector performance outcomes will derail efforts to do more with less whenever the inevitable cuts in public spending finally kick in.
Subsequent CIPD research showed that much of what he said was right.
But now many public sector organisations are faced with massive budget cuts. The scale of these cost reductions is not only way outside the experience of the public sector, it is also more than most private sector organisations have achieved. Over the last year, managers have had to force through cuts the like of which no-one has ever seen and there are more to come. Employers who never pushed their unions too hard in the past now have their backs to the wall and are playing hardball. In many organisations, neither unions nor managers were prepared for such a rapid change. When years of collusion are suddenly replaced with confrontation, it is hardly surprising that some negotiations break down.
In most organisations, managers and unions will adjust to their new environment quickly. They will steer a course between confrontation and collusion and reach some form of negotiated settlement. For some, though, the shock of these massive changes will be too great and they will adopt entrenched positions. Dismissal and re-engagement was once regarded as the nuclear option of employee relations. As the financial position of public sector bodies worsens, it is an option that a lot more employers will consider.