Review flexibility clauses and consider making any significant required changes to contractual terms before the new provisions come in

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. f

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 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. 

New to Bhayani Law?

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.