What is the current situation?
‘Fire and rehire’ is the colloquial term for dismissal and re-engagement where an employer implements contractual changes by ending an employee’s contract but offers them the same job back on different terms. The term is sometimes also used to cover ‘fire and replace’, where an employee is dismissed and replaced by a new employee doing essentially the same job but on different terms.
Fire and rehire may be used to implement significant contractual changes, for example, where the employer hasn’t been able to get employee agreement to changes which, without agreement, may amount to a fundamental breach of contract. Fire and rehire can be lawful if the employer has a good business reason and follows a proper process.
When using fire and rehire, employers must comply with the consultation requirements of the Statutory Code of Practice on Dismissal and Re-engagement (put in place in July 2024 and already making the practice much more difficult). In addition, the employer must comply with statutory collective consultation rules where they apply, i.e. where the proposal is to dismiss 20 or more employees within a 90-day period.
So what’s changing and when?
The Government aims to end the ‘unscrupulous use of fire and rehire’. The Employment Rights Act will significantly restrict an employer’s ability to use fire and rehire to change an employee’s terms.
It will be automatically unfair to dismiss an employee for failing to agree to a ‘restricted variation’ to their contract of employment, even where the employee is rehired on different terms, or is offered this. It will also be automatically unfair to ‘fire and replace’ the employee with another employee or even a non-employee, for example, worker, self-employed contractor, agency worker, etc.
The Government has said that ‘restricted variations’ will include reductions to pay, reduced holiday entitlement, changes to pension and variations in total number of working hours. Introducing a flexibility clause on any of these matters will also amount to a restricted variation. Apparently, changes to location or job duties will not be restricted variations.
A Government consultation will close on 1 April 2026, focusing on the following two types of restricted variations in relation to fire and rehire:
- employment expenses and benefits
- shift patterns.
The Government also plans to gather views on updating the Statutory Code of Practice on Dismissal and Re-engagement.
There will be a limited exception for cases where a business is threatened by severe financial difficulties. Under this exception, making a restricted variation via dismissal and re-engagement won’t be treated as an automatically unfair dismissal if the employer can show:
- Evidence of financial difficulties affecting the business’s ability to continue as a going concern
- The changes were to reduce or prevent the effects of the financial difficulties, and
- There were genuinely no alternatives to the changes to employees’ contractual terms.
This is very high threshold, so the exception will only rarely apply.
Even if an employer’s fire and rehire (or fire and replace) of an employee isn’t automatically unfair (because the change that it is implementing is not a restricted variation or the exception above applies), it will still need to meet the standard required to avoid an ordinary unfair dismissal finding. The Act sets out the factors an employment tribunal will consider when deciding if a dismissal amounts to an ordinary unfair dismissal, which are: the reason for the change; any individual or collective consultation; and any incentive the employee was offered in return for the change. However, this does not represent an important change as these factors align with those that currently tribunals consider anyway. In addition, employers will need to continue to comply with the Statutory Code of Practice on Dismissal and Re-engagement, which will be amended.
All of the above changes are expected to take effect from January 2027.
Note, too, that other changes in the Act will impact on fire and rehire practices. The qualifying period for an employee to claim ordinary unfair dismissal will reduce from two years to six months and the cap on unfair dismissal compensation will be removed. (You can read about this here.) Statutory collective consultation rules will also become more onerous and penalties for breaching them will increase. (You can read about these changes here.)
In summary, employers will find it more difficult in future to make significant contractual changes without agreement. This could potentially result in employers being left unable to change uncommercial or outdated terms, employees refusing to agree changes without incentives and employers imposing changes unilaterally more often (with the consequent risks).
What you need to do
The timing of some of these actions will depend on when the detail of the new laws is finalised and when the changes come into force. However, you can start to plan now:
- Consider accelerating any significant changes you are planning to employees’ contractual terms. If you are considering implementing changes which may become restricted variations via fire and rehire for employees who do not agree to the change, you will want to complete the process before the change in the law (expected in January 2027) would mean an automatic unfair dismissal claim.
- Review and update flexibility clauses in contracts. A well-drafted flexibility clause (included in contracts before the changes to fire and rehire come in) might help you make some changes without needing consent from employees.
- Ensure employment policies are non-contractual, to give you greater flexibility to update them in the future. This could include disciplinary, grievance or absence policies.
- Consider your strategy for making significant changes to contractual terms once the law has changed. This is likely to include a greater emphasis on obtaining workforce support but also in certain circumstances relying more on unilateral variation.
- Strengthen employee engagement. A more cooperative workforce is more likely to accept changes. Review your relationship with unions and other employee representatives and look for opportunities to build trust and improve communication.
How we can help
The Employment Rights Act significantly limits how employers can change contractual terms. This raises the risk around workforce change, restructuring and cost control, particularly where agreement cannot be reached.
Our HR and legal experts can help you to plan ahead, reduce exposure, and manage change in a way that stands up to scrutiny. We can support you with:
- Contract and flexibility clause review: Reviewing existing contracts and flexibility clauses to assess what changes may be possible without consent, and to identify potential areas of risk.
- Planning contractual change before the law changes: Practical support to help you assess and, where appropriate, complete significant contractual changes ahead of January 2027 reforms.
- Workforce change strategy: Helping you develop a clear strategy for implementing changes once restrictions are in place, including when consent is required and how to approach it.
- Consultation and engagement support: Advising on individual and, where appropriate, collective consultation, including working with unions and employee representatives to build understanding and support.
- Policy structure and contractual status review: Reviewing policies to ensure they are discretionary and not contractual so they can be updated without triggering unintended obligations.
- Risk assessment and decision support: Helping HR and leadership teams understand which changes may fall into restricted variations and where alternatives should be explored.
- Manager and leadership capability: Strengthening decision-making and negotiation skills so leaders can assess contractual change, manage risk and approach workforce discussions with clarity, supported by training such as Critical Thinking & Decision Making and Conducting Workplace Negotiations.
Additional support and resources
Stay informed and prepared by signing up to our email updates, where we’ll share confirmed changes and key dates as they come into force. Members can access up-to-date guidance, template policies and letters in our HR & Legal Resources section, and our expert team is on hand to answer questions or provide practical support, whether or not you are a Make UK member. You can also contact our ERA enquiry line.
To see the planned changes at a glance, download our free Employment Rights Act planner for clear timelines and practical next steps. If you’d like a deeper insight, ask about our Audit and Impact Assessment - a structured review to help you understand your levels of risk, prioritise actions and plan with confidence.