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 changes would otherwise amount to a fundamental breach of contract, where the employer hasn’t been able to get employee agreement. It 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 rolling 90-day period.
So what’s changing and when?
The Government aims to end the ‘unscrupulous use of fire and rehire’. The Employment Rights Bill significantly restricts an employer’s ability to use fire and rehire to change an employee’s terms.
From October 2026, 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.
The Government will consult further on its fire and rehire proposals in Autumn 2025. The consultation will include consideration of which other changes should count as restricted variations and the circumstances in which changes to shift timing or duration of shifts should count.
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 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 Bill sets out the factors an employment tribunal will consider when deciding if a dismissal amounts to an ordinary unfair dismissal, but this does not represent an important change as these factors align with those that currently tribunals consider anyway. In addition, employers will need to comply with the Statutory Code of Practice on dismissal and re-engagement, which will be amended.
Note, too, that other changes in the Bill will impact on fire and rehire practices. From 2027, the right to claim ordinary unfair dismissal will become a day one right. (You can read about this day one right here.) The Bill will also make statutory collective consultation rules more onerous and increase penalties for breaching them. (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 left unable to change uncommercial or outdated terms, employees refusing to agree changes without incentives or employers imposing changes unilaterally more often (with the consequent risks).
What you need to do 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 need to complete the process before October 2026 to avoid automatic unfair dismissal claims.
- 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.
- 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 can Make UK help you
Whether you’re already getting support from us or you’re just starting to explore your options, we’re here to help you plan for the Employment Rights Bill changes and protect your business.
Already getting support from Make UK?
You’ll receive updates from us as key legal changes come in, so you can stay compliant and up to date.
Detailed HR and employment law guidance and template policies and letters can also be found in the HR & Legal Resources section of our website.
If you’ve got questions or need advice, your Make UK legal adviser is on hand to help.
We can arrange training for managers. This could include how to work with employee representative bodies and trade unions, including negotiating skills and managing conflict, and how to manage the process for electing employee representatives. We also offer employee representative training courses.
Our HR and legal consultants can also provide hands-on support on any projects as you prepare for these changes. For example, we can advise you on the best approach to changing terms in your specific circumstances and introducing or amending flexibility clauses ahead of these changes to the law. We can also support by analysing working patterns to maximise efficiency, or helping you manage the employee relations and communication aspects of a contractual change programme.
You can also shape future policy. We speak regularly with Government and feed into consultations, using input from businesses like yours.
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06/08/2025