Review any planned changes to contracts and examine your flexibility clauses now, before new legislation makes dismissing and re-engaging staff significantly harder.

What is the current situation?

Fire and rehire is the term used when an employer ends an employee’s contract and offers them their role back on different terms. It can also include fire and replace, where the person is dismissed and another individual takes on the same role but under altered terms.

This approach is sometimes used to bring in major contractual changes that might otherwise be a breach of contract if imposed without agreement. It can be lawful where there is a strong business reason and the correct process is followed.

Employers using fire and rehire must follow the Statutory Code of Practice on Dismissal and Re-engagement (introduced in July 2024), as well as collective consultation rules where 20 or more employees could be dismissed within a rolling 90-day period.

What’s changing and when

The Government plans to curb what it calls the “unscrupulous use” of fire and rehire. The Employment Rights Bill will significantly limit when this practice can be used.

From October 2026, it will be automatically unfair to dismiss an employee for refusing to accept a restricted variation to their contract, even if they are rehired on new terms or offered the role again on altered terms. The same rule will apply to fire and replace, whether the replacement is another employee or a worker, contractor, or agency staff member.

Restricted variations will cover reductions in pay, cuts to holiday entitlement, pension changes, and alterations to total working hours. Adding a flexibility clause covering any of these will also be classed as a restricted variation. Changes to job location or duties are not expected to be included.

A Government consultation in Autumn 2025 will decide whether other contractual changes, such as alterations to shift times or durations, should also be restricted variations.

There will be a narrow exception for businesses facing serious financial difficulty. To use this exception, the employer must show evidence of financial challenges threatening the business’s survival, that the changes would reduce or prevent the problem, and that there were genuinely no alternatives. This will be a very high threshold and will only apply rarely.

Even when the change is not classed as a restricted variation, or the financial exception applies, employers will still need to meet the ordinary unfair dismissal test and comply with the amended Statutory Code of Practice.

From 2027, other Bill changes will also affect fire and rehire, including day one rights for unfair dismissal, stricter collective consultation rules, and tougher penalties for breaches.

What you need to do now

• Bring forward any major contractual changes you are considering before October 2026 to avoid falling foul of the new restrictions.
• Review and strengthen flexibility clauses in contracts now, so you can make permitted changes without requiring agreement later.
• Keep policies non-contractual wherever possible, so they can be updated without employee consent.
• Focus on employee engagement and building trust to improve the chances of changes being accepted voluntarily.

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 Bill changes and protect your organisation.

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 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.