Fire and rehire restrictions: what employers need to know ahead of January 2027 

The Employment Rights Act 2025 will significantly restrict employers’ ability to dismiss employees who refuse changes to their contractual terms and conditions. With the principal reforms scheduled to take effect on 1 January 2027, employers should review their approach to contractual variations, workforce restructuring and employee consultation now. 

What is fire and rehire? 

Fire and rehire, also known as dismissal and re-engagement, is the practice of dismissing an employee who refuses to agree to a contractual change and offering to re-engage them on revised terms. 

Employers have historically used this approach to implement changes to pay, working hours, benefits, shift patterns and other contractual provisions where agreement cannot be reached. 

Although the practice is not generally unlawful in itself under the existing framework, dismissals can give rise to unfair dismissal claims, breach of contract claims and, where relevant, collective consultation liabilities. 

The Employment Rights Act 2025 introduces a more restrictive regime. Its objective is to prevent employers from using the threat of dismissal to force employees to accept certain detrimental contractual changes, while retaining a degree of flexibility for legitimate business reorganisations. 

When do the new restrictions take effect? 

The principal fire-and-rehire reforms are scheduled to take effect on 1 January 2027. 

Employers should not wait until that date to review their practices. Contractual harmonisation exercises, reward reviews, restructuring projects and changes to working arrangements already under consideration may need to be reassessed against the new statutory framework. 

The distinction between the existing law and the incoming regime is important. Until the new restrictions take effect, the existing legal framework continues to govern relevant dismissals, subject to any other applicable changes in the law. 

Which contractual changes are protected? 

The legislation introduces the concept of a “restricted variation”. These are specified contractual changes for which dismissal and re-engagement will generally result in automatic unfair dismissal. 

The protected categories currently include: 

• Pay and remuneration: reducing or removing an entitlement to sums payable in connection with employment, subject to the statutory provisions and any applicable regulations. 

• Working hours: changing the number of hours an employee is required to work. 

• Pensions: varying contractual terms or conditions relating to pensions or pension schemes. 

• Hours of work: a variation of the number of hours which an employee is required to work. 

• Shift patterns: specified changes to the timing or duration of shifts, as defined by the relevant regulations. 

• Contractual flexibility clauses: introducing terms that would allow an employer to make one of the protected changes without the employee’s agreement. 

The legislation also allows further categories to be specified through regulations. Employers should therefore check the applicable regulations when assessing a proposed variation. 

The restrictions can apply where the employer dismisses an employee because they refuse a protected change or dismisses them to enable their re-engagement or replacement on a contract containing a protected change. 

The protection is not confined to a particular label attached to the contractual amendment. Employers must examine the substance of the proposed variation and the real reason for the dismissal. 

Is there an exception for financial difficulties? 

There will be a limited exception for employers facing qualifying financial difficulties. 

Broadly, an employer must demonstrate that the proposed restricted variation is intended to eliminate, prevent or significantly reduce, or significantly mitigate the effects of financial difficulties which are affecting, or are likely in the immediate future to affect, its ability to carry on the business as a going concern. 

The employer must also demonstrate that, in all the circumstances, the need to make the variation could not reasonably have been avoided. 

This is a demanding statutory test. A general desire to reduce expenditure, improve margins, increase competitiveness or achieve greater operational flexibility should not be assumed to satisfy it. 

Employers contemplating reliance on the exception should document their financial position, the anticipated consequences of not making the changes, the alternatives considered and the reasons those alternatives would not reasonably avoid the need for the proposed variation. 

Separate provisions apply to certain public-sector employers, including a specific test concerning the financial sustainability of carrying out statutory functions. 

Even where an exception is available, employers should carefully consider the consultation process, contractual position and any other employment law obligations arising from the proposed changes. 

What happens if the proposed changes are not protected? 

The new legislation does not make every dismissal connected with contractual change automatically unfair. 

Where an employer seeks to implement a variation that is not a restricted variation, a dismissal for refusing the change, or for the purpose of re-engaging or replacing the employee on the revised terms, will be subject to an enhanced statutory assessment of fairness. 

The tribunal must consider specified matters, including: 

• the employer’s reason for proposing the variation; 

• consultation with the employee; 

• consultation with a recognised trade union, where applicable; 

• consultation with other authorised employee representatives, where applicable; and 

• anything offered to the employee in return for agreeing to the variation. 

This means that employers will need to demonstrate more than a general commercial justification. The rationale for the change, the quality of the consultation and the package offered to employees may all be relevant to the assessment of fairness. 

The distinction between protected and non-protected changes is therefore critical. Employers should identify the precise contractual provisions affected before deciding which legal framework applies. 

Does the legislation prevent employers from changing contracts? 

No. The reforms do not prevent employers from proposing contractual changes or negotiating new terms with their employees. 

Employers may still seek agreement to changes that are commercially necessary or operationally desirable. The key distinction is between obtaining agreement and attempting to impose a change through dismissal and re-engagement. 

Existing contractual variation clauses should also be reviewed carefully. Their existence does not necessarily give an employer unrestricted authority to impose changes, and the new legislation expressly addresses clauses that would permit protected variations without employee agreement. 

Employers should therefore consider whether proposed changes can be achieved through consensual arrangements, phased implementation, voluntary changes, revised benefits or alternative operational measures. 

Where agreement cannot be obtained, employers should assess the statutory restrictions and the ordinary law of unfair dismissal before deciding how to proceed. 

Consultation and collective obligations 

Meaningful consultation will remain an important part of the process. 

Employers should explain the business rationale for the proposed changes, provide appropriate information, invite representations and consider alternatives while proposals remain open to genuine discussion. 

Where a recognised trade union represents the affected employees, the employer should consider its collective bargaining obligations and the applicable consultation requirements. 

Separate collective consultation duties may also arise where the proposals involve a sufficient number of proposed dismissals within the relevant statutory period. These obligations should be assessed independently; complying with one consultation requirement does not necessarily satisfy another. 

Employers should keep a clear record of the proposals, employee and representative feedback, alternatives considered and the reasons for the final decision. 

Practical steps employers should take now 

In advance of January 2027, employers should consider the following actions. 

1. Audit existing contractual terms. Identify the terms that may need to change, particularly pay, hours, pensions, leave and shift arrangements. 

2. Review planned restructuring. Reassess contractual harmonisation, integration, cost-reduction and workforce transformation projects that could involve dismissal and re-engagement. 

3. Examine variation clauses. Determine whether existing clauses are enforceable and whether proposed amendments could fall within the statutory restrictions. 

4. Improve consultation procedures. Ensure that HR teams and managers understand how to conduct meaningful consultation and involve recognised unions or other representatives where appropriate. 

5. Strengthen decision-making records. Document the business rationale, the contractual provisions affected, the alternatives considered and the reasons for rejecting those alternatives. 

6. Assess financial exceptions carefully. Where financial difficulties are relied upon, ensure that the statutory conditions are satisfied and supported by contemporaneous evidence. 

7. Train managers and HR professionals. Ensure that those responsible for contractual changes understand the difference between negotiating changes, relying on existing contractual rights and dismissing employees to impose new terms. 

What are the risks of non-compliance? 

Where a dismissal falls within the statutory restrictions, the employer may face an automatic unfair dismissal claim. The ordinary qualifying period for unfair dismissal will not be required for a claim falling within the relevant automatic unfair dismissal provisions. 

Depending on the circumstances, additional exposure may arise for breach of contract, wrongful dismissal, discrimination or failures to comply with collective consultation obligations. 

The consequences may extend beyond compensation. Disputes can disrupt restructuring projects, damage employee relations, consume management time and create reputational risks. 

Conclusion 

The Employment Rights Act 2025 represents a significant change in the law governing fire and rehire. From 1 January 2027, employers will face substantial restrictions on using dismissal and re-engagement to impose protected contractual changes. 

The reforms do not prevent employers from negotiating changes or responding to genuine business needs. They do, however, make it essential to distinguish between restricted and non-restricted variations, understand the applicable statutory tests and adopt a properly documented process. 

Employers planning significant changes to employment terms should review their proposals well in advance of the new regime taking effect. Early legal advice can help identify permissible options, improve consultation and reduce the risk of costly employment litigation. 

This article provides general information only and is based on the law and official implementation timetable available on 10 September 2026. It is not legal advice. Future commencement dates remain subject to parliamentary processes and may change.