‘Fire & rehire’ practices to be outlawed under the Employment Rights Act

‘Fire and rehire’ describes a situation where an employer dismisses an employee and then offers to re-engage them on different terms, which are generally less favourable. Under planned reforms set to be introduced by the Employment Rights Act, such practices will be outlawed.

The Government initially indicated that it would consult on reforms to fire and rehire in autumn 2025, with legislation expected to take effect in October 2026. That implementation date has since been put back and new restrictions are set to come into force in January 2027.

Here, Eddy Davies and Andy Graham outline what employers need to know about the changes to fire and rehire, including four key steps to take in preparation. 

Unfair dismissal

From January 2027, dismissing an employee and then rehiring (or replacing) them on worse terms and conditions will amount to an automatically unfair dismissal in most cases. This change will sit alongside the wider reforms to unfair dismissal, including the reduction in the qualifying service requirement to six months.

Under the new law, an employee will be automatically unfairly dismissed where the reason (or principal reason) for dismissal is either:

1. The employee refused to agree to a ‘restricted variation’ (see below) in their contract of employment.
2. To enable the employer to employ another person or to re-engage the employee under a varied contract of employment to carry out the same (or substantially the same) duties as the employee carried out before being dismissed, where one of the differences is a ‘restricted variation’.

What counts as a ‘restricted variation’?

1. A reduction of the employee’s pay or pensions.
2. A variation in the employee’s working hours, shift pattern or holiday entitlement.
3. The inclusion of a variation clause in the contract of employment which enables the employer to make any of the above variations without the employee’s agreement.
    

The ERA gives the Government the power to add further types of contract changes to the definition of ‘restricted variation’. However, in its February 2026 consultation, the Government confirmed that it doesn’t currently intend to expand the list.

The new law will also capture ‘replacement’ scenarios. It will be automatically unfair to dismiss an employee to enable the employer to replace them with a non-employee (for example, an agency worker or self-employed contractor) where the change is connected to introducing a ‘restricted variation’.

The exception: employer financial difficulties

However, automatic unfair dismissal won’t apply if the employer can show both of the following:

1. The reason for the restricted variation was to eliminate or significantly mitigate the effect of any current or imminent financial difficulties affecting either:
2. The employer's ability to carry on the business as a going concern.
3. Where the employer is a public sector employer (other than a local authority), the financial sustainability of its statutory functions.
4. In all circumstances, the employer couldn’t reasonably have avoided the need to make the ‘restricted variation’.
    

This is a high bar and will be difficult to argue. Importantly, it operates only as an exception to automatic unfair dismissal. An employer may still need to justify the dismissal as fair under the wider unfair dismissal framework.

What the Government’s impact assessment says

In January 2025, the Government published an impact assessment on the new restriction. 

Its key findings included that approximately 12,200 businesses may engage in fire and rehire each year (<1% of employers) and there’ll be a net cost to business of nearly £100m, as employees retain their core employment terms such as higher pay and leave entitlement.

If fire and rehire is restricted, how can employers change employment terms?

Employers will still be able to change employment terms but they’ll have to take greater care when doing so. 

In practice, a contract of employment is usually amended in one of two ways:

1. With the agreement of the parties.
2. In accordance with flexibility clauses that are already written into the contract, allowing limited changes in defined circumstances. However, the courts and tribunals treat such clauses with extreme caution and interpret them narrowly.

Four key steps for employers to take now

In advance of the change in law in January 2027, employers should:

1. Review existing contracts and consider making amendments on an expediated basis (and before January 2027).
2. Build appropriate flexibility clauses into the contracts of new hires. 
3. Strengthen employee consultation processes — such as employee forums or collective negotiation frameworks — to facilitate future changes.
4. Ensure that decision makers have knowledge of the changes to the fire and rehire’ landscape.

Talk to us

If you need advice on what these reforms mean for your business and how to prepare, we’re here to help.

Our award-winning employment law specialists support businesses in navigating the Employment Rights Act with confidence.   

Talk to us by calling 0333 004 4488, emailing hello@brabners.com or completing our contact form.