What is the current situation?

“Fire and rehire” is the commonly used term for dismissal and re-engagement. It describes a situation where an employer seeks to introduce contractual changes by terminating an employee’s contract and offering re-employment in the same role but on revised terms. The term is also sometimes used to describe “fire and replace”, where an employee is dismissed and replaced by someone else performing essentially the same role on different terms.

Fire and rehire is typically used to introduce significant contractual changes where the employer has been unable to secure employee agreement and where imposing changes without consent could amount to a fundamental breach of contract. Fire and rehire can be lawful, provided the employer has a sound business reason and follows a fair and proper process.

Employers using fire and rehire must comply with the consultation requirements set out in the Statutory Code of Practice on Dismissal and Re-engagement, introduced in July 2024, which has already made the practice significantly more difficult. Employers must also comply with statutory collective consultation obligations where applicable, including where there is a proposal to dismiss 20 or more employees within a rolling 90-day period.

So what’s changing and when?

The Government has stated that it intends to put an end to the “unscrupulous use of fire and rehire”. The Employment Rights Act will substantially limit an employer’s ability to use dismissal and re-engagement to change contractual terms.

It will be automatically unfair to dismiss an employee because they refuse to agree to a “restricted variation” to their contract of employment, even where the employee is re-engaged on different terms or offered re-engagement. It will also be automatically unfair to “fire and replace” the employee with another individual, including a worker, agency worker or self-employed contractor.

The Government has indicated that “restricted variations” will include:

• reductions in pay

• reductions in holiday entitlement

• changes to pension arrangements

• changes to the total number of working hours

Introducing a flexibility clause in relation to any of these matters will also amount to a restricted variation. Changes to work location or job duties are not currently expected to be restricted variations.

Further consultation will take place on the fire and rehire proposals. This will include consideration of whether other contractual changes should be treated as restricted variations, and in what circumstances changes to shift patterns or shift length should fall within scope. The consultation will also consider updates to the Statutory Code of Practice on Dismissal and Re-engagement.

Financial difficulty exception

There will be a limited exception where a business is facing severe financial difficulties. In these circumstances, dismissal and re-engagement to introduce a restricted variation will not be automatically unfair if the employer can demonstrate that:

• the business is experiencing financial difficulties that threaten its ability to continue as a going concern

• the changes were necessary to reduce or avoid the impact of those difficulties, and

• there were genuinely no reasonable alternatives to changing employees’ contractual terms

This is a very high threshold and is expected to apply only in exceptional cases.

Ordinary unfair dismissal considerations

Even where a dismissal is not automatically unfair (because the change is not a restricted variation or the financial difficulty exception applies), employers will still need to satisfy the test for ordinary unfair dismissal.

The Act sets out the factors an employment tribunal will consider, including:

• the reason for the contractual change

• the extent of any individual or collective consultation

• any incentive offered to the employee in return for agreeing to the change

These factors broadly reflect the considerations tribunals already apply. Employers must also continue to comply with the Statutory Code of Practice on Dismissal and Re-engagement, which will be amended.

Timing and wider impact

All of the above changes are expected to come into force in October 2026.

In addition, other reforms in the Act are likely to affect fire and rehire practices. These include the proposed reduction in the qualifying period for ordinary unfair dismissal claims from two years to six months, the removal of the cap on unfair dismissal compensation, and more onerous collective consultation requirements with increased penalties for non-compliance.

What you need to do

While the precise timing will depend on when the legislation is finalised and brought into force, employers can begin planning now:

• Consider accelerating any major contractual changes currently under consideration, particularly where fire and rehire may otherwise be required before October 2026.

• Review flexibility clauses in contracts. Well-drafted clauses put in place before the new rules take effect may provide greater scope to implement changes without employee consent.

• Ensure policies are non-contractual, including disciplinary, grievance and absence policies, to retain flexibility to amend them in future.

• Plan your future approach to contractual change, with greater emphasis on workforce buy-in and, where appropriate, careful use of unilateral variation.

• Strengthen employee engagement. A collaborative workforce is more likely to accept change. Consider how relationships with unions or employee representatives can be improved and how trust and communication can be built.

How Bhayani Law can help you

Whether you already partner with us or are seeking expert advice for the first time, we can provide tailored legal and HR solutions to help you plan for the Employment Rights Act changes and protect your organisation.

Already getting support from Bhayani Law? 

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 Watertight HR Hub.

If you’ve got questions or need advice, your dedicated advisor is on hand to help.

We can arrange training for managers. 

Our HR and legal team 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. 

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You don’t have to face the changes alone. Whether you need quick input or ongoing support, we can help you however works best for your business.